Earnings Call: H2 2023

Mar 7, 2024

Our value proposition: inventing success together. In relation to the total cost of the customer product, the direct cost of SFS products embedded or used in the production processes accounts often for less than 1%. However, the associated costs on the customer side, such as procurement or logistic costs, are several times higher. Thus, the focus on optimizing the direct costs of SFS products offers little room for improvement. Therefore, we always strive to understand the customer's application and to reduce the total cost for our customer, thanks to an individual innovative solution. Our focused business activities aim for tailored solutions for selected niche applications. In the segment Engineered Components, this includes automotive and industrial applications under the brands of SFS and GESIPA, as well as electronics applications under the brand of Unisteel, and medical applications under the brand of Tegra Medical. In the segment Fastening Systems, we serve the construction industry under the brand of SFS. The segment Distribution & Logistics pursues its development under the brand of SFS with our Swiss customer base and in the application range of industrial manufacturing and construction. Under the brand of Hoffmann, we serve the European and increasingly also the U.S. and Asian industrial customer base with quality tools, workshop, and personal protective equipment. While the business model and customer groups of our three segments differ depending on the end markets, the organization is designed in such a way that the natural synergies generated are maximized across all areas. These synergies primarily relate to technological competence, sales and marketing excellence, and the potential cross-selling opportunities with customers. For instance, in the segment Engineered Components, we industrialize tools. In the segment Fastening Systems, we sell installation tools plus fasteners, and in the segment Distribution & Logistics, we trade with tools. SFS operates and produces at around 140 locations in 35 countries worldwide. Through local production and proximity to the customer, we guarantee a minimum of logistical effort and costs, as well as synergy effects through optimal know-how transfer. The global manufacturing platform, in combination with the standardized machine park, allow the support of international customers on-site. Proximity to customers has been the major driver for the internationalization of the SFS Group since the 1970s. Today, SFS is an international company with Swiss roots. Our value proposition, combined with our focused business activities and the utilization of our global business platforms, lead then, in combination with the mega trends on which we base our business strategies on, to sustainable growth through the cycle. Under growing market segments, we understand the niche markets and applications with above-average value creation, innovation, and growth potential, having a strong link also to underlying mega trends. By applying our operational excellence core knowledge in building up and managing robust supply chains, high volume production technologies, time to volume expertise, and best-in-class availability, we deliver to the customer the quality and reliability we are known for. By leveraging then our global business platforms through offering local-for-local business development capabilities, we are enabling our divisions to continuously increase share of wallet with customers. At the same time, allowing customers to achieve a reduction of supply chain complexity. This over the years fine-tuned formula for growth and sustainable high margins will carry us well through the also current, more challenging part of the business cycle. I continue with the key takeaways, which can be best summarized as well on track. Despite the difficult economic environment, SFS achieved a stable development and met the targets set for the year. Third-party sales of CHF 3.09 billion were generated, a plus of 12.6% versus prior year. Sales development was driven by robust organic growth of 2.1% and consolidation effects from Hoffmann of 14.6%. Strong currency effects negatively impacted growth with -4.1%. An operating profit or EBIT of CHF 358.6 million was generated. In the previous year, CHF 330.3 million. EBIT was visibly and significantly impacted by consolidation and mix effects, inconsistent capacity utilization in Engineered Components, inflationary cost increases, and an ongoing appreciation of the Swiss franc. The reached EBIT margin of 11.7% compared to previous year with 12.1%, is considered rock solid in light of the economic conditions as experienced in our end markets. Earnings per share of CHF 6.84 are reported, burdened by tax effects in the previous year, therefore, slightly higher with CHF 6.95. CHF 174 million in growth-related investments were carried out, including new production equipment in Switzerland, here in Heerbrugg, for the electric parking brake business, the expansion of our production platform in Nantong for our electronics business, and on the IT side, we can report the ongoing upgrade of our ERP system and the strengthening of our cybersecurity initiatives. The integration of Hoffmann is progressing well. Both divisions of Distribution & Logistics segment benefit from potential of closer collaboration. Organizational changes to strengthen the customer focus were initiated and are in implementation with the complementation of the automotive and industrial division with the end market-specific business areas from the riveting division. Besides, the medical and industrial division were combined for the better use and organization of technologies. The 2023 ESG highlights state clear, we are well on the way to achieving our long-term environmental targets. In 2023, SFS Group reduced scope one and two emissions by -7.6% in absolute terms compared to the 2020 reference year. The tons of CO2 equivalent per Swiss franc of value added has been reduced by even 58.5%. That means SFS has moved another step closer to its target of reducing the intensity of greenhouse gas emissions by at least 90% by 2030. In order to reinforce its emissions reduction targets, SFS committed itself to the Science Based Targets initiative in the year under review. Due to the general energy situation, the electricity mix in Switzerland was temporarily supplemented with electricity from nuclear energy. As a result, the share of renewable energy fell to 40%. In the prior year, we were at 49.7%. With the social targets, we can conclude the dual training objective were secured, but the accident rate remained once again too high. SFS made further progress in the year under review, especially in the expansion of training and dual education programs. SFS is convinced of the enormous importance of the dual-track system of education and training and its importance on the economy and society side. The number of employees in the dual training and education programs remained with 5.1% in the targeted bandwidth. At four accidents per million work hours in the year under review, the accident rate remained, as mentioned, at the same level as in 2022. A total of 103 occupational accidents were reported, one accident more than in the previous year. Fortunately, the SFS Group succeeded in reducing the number of accidents with serious consequences by 33.3% year-over-year, and the number of lost days by -15.2%. SFS is making great efforts to reduce the accident rate in the coming years and to still achieve the ambitious target by 2025. Based on an accident rate of 4.7 in 2020, the target for 2025 is 2.4 accidents per million working hours. On the governance side, there were no compliance incidents at SFS that resulted in fines or legal proceedings. We additionally have no knowledge of any human rights violations with the company's sphere of influence that were committed in 2023. That also includes the topic of child labor. Two compliance audits were carried out. The results of both were positive and document the code of conduct's effective implementation. In the year under review, the group compliance officer and the local compliance officers received a total of 36 compliance-related reports. Following careful examination, 19 of those reports were confirmed as being compliance violations and appropriate consequences were initiated. With that, I hand over to Volker for the development of the key financials. Thank you, Jens. Good morning, everybody. Welcome to this event. With challenging environment from the market point of view, as well as with challenges described from the CEO just now, we may report a stable development in a difficult environment. The teams managed again to balance between the various constraints, and we were finding measures to realize growth potential in various areas. We are happy to present to you today the financial results 2023, which reflect the efforts and the dedication of more than 13,200 employees, and we here thank all of them for their contribution made. Overall, the group achieved a top-line growth of 12.6%, mainly driven by the CHF 401 million scope effect from the Hoffmann acquisition. Despite the FX headwind of 4.1% or CHF 113 million, we may report an underlying organic growth of 2.1%. This underlying organic growth stems mainly from progress in product mix and price management in a difficult environment. Currency exposure to mainly the U.S. dollar and the euro, in the segments is varying widely. Therefore, also the FX impact on the segments is spread from 5.3% in Engineered Components and Fastening Systems, to 2.3% in Distribution & Logistics. The financial year showed, especially in Engineered Components, difficult conditions with de-stocking effects in the electronics and in other industries, as well as partially lower consumer demand. At the same time, volumes in the Fastening Systems segment were stable. However, the competitive environment intensified as the product availability improved and the supply chain issues generally eased up. The segment Distribution & Logistics— We get a technical issue here. Entschuldigung. In another way. Thank you very much, Domingo. At the same time, the volumes in Fastening Systems, as said, were stable and the segment D&L showed overall a strong underlying growth. The geographic end markets show a further shift towards the European region based on the scope effects that stem from the Hoffmann acquisition. Relative weight of Switzerland is further reduced given the scope effects in other regions. Additionally, the slow electrical and electronics end market, which predominantly resides in Asia, is showing. Americas is very stable in nominal terms. Relative shares of the Americas and Asia are decreasing mainly due to the Hoffmann acquisition. Hoffmann acquisition brought roughly 90% of sales in Europe with it. This documents also the further growth potential in the areas of Americas and Asia. Sales breakdown by end market shows the mentioned development towards our customers in industrial manufacturing and other industries, as D&L international segment is well connected and represented in these end markets as their valued partner. As before mentioned, the sales in electrical and electronics end market slowed down as their particular supply chain management in the industry was generally tightened. We report an EBIT of CHF 358.6 million or 11.7% on sales and an EBITDA of CHF 486 million for the financial year, which is 15.8% in sales. As our customers showed high inventory levels and demand, therefore, utilization on our end was impacted. The tightening of supply chains, and the subdued customer confidence filtered through, and this was mentioned already earlier by Jens. In parallel, we deliberately ramped up capacity, in the wake of new projects and therefore also engaged operational cost, which was done as a deliberate move towards the new products. Breakdown in the profitability between first half year, second half year, was driven by the change in mix and particularly the mentioned ramp-up cost, which subdued the profits in the second half year. Swiss franc exposure looks along the geographical shifts towards Europe. We show here a Swiss franc invoiced, which goes in relation down to the 11.3%. At the same time, the operational expense in Swiss francs show a flattish development. This is mainly based on two factors. One is the appreciation of the Swiss franc and therefore relative movement of the OpEx in non-Swiss franc realm. The second one is the important ramp-up that we engage here in Heerbrugg with the buildup of the capacity for ball screw drives in the electronic brake systems arena. Countermeasures are targeted along productivity improvements, relocation of processes outside of the Swiss franc realm, and the adoption of natural hedge wherever possible. Remaining FX imbalances are hedged successfully, as in the past, and are in place for 2024 above a level of two-thirds. Earnings per share were mentioned. It is the CHF 6, 84 rappen per share, which is a decrease of -1.5% versus prior year. This is burdened by a higher-than-expected tax rate of 23.8%, as well as the interest cost, mainly the bond. When we engaged the foreign debt last year, mid-year, we took six months of interest cost versus 12 months in 2023. Based on this performance on the earnings per share, the board proposes to the general assembly a dividend of CHF 2.50, which is paid in half from tax-privileged capital reserves, which is favorable for individuals that are resident in Switzerland. With the dividend we propose, we remain at the lower end of our bandwidth targeted for the payouts, and we pursue our aim to deleverage the balance sheet going forward. Dividend yield is at 2.4% based on the share price 31st of December 2023. Net working capital management was a high priority in the past year, and this especially coming from a period of relatively high inventories and high safety stocks, and also with the target of the deleveraging of the balance sheet. We managed to decrease the net working capital needed, especially from the inventories, but also despite the termination of a factoring program which was installed at Hoffmann and was carried over after the acquisition. The effect of the refinancing of the factoring program will be described with the cash flow developments later during the presentation. In the past year, we engaged CapEx of CHF 174 million, which are 5.7% of sales. With that, we strive in the new composition of the SFS Group towards a CapEx bracket of 4%-6%, given the lower capital intensity of the D&L segment. As earlier mentioned, the substantial expansions, namely in automotive division here in Heerbrugg, in Medina in the U.S.A., and our site in Nantong in China, are ongoing. All of them are well in plan progressing. Operating free cash flow is reported at CHF 139 million, which is a conversion of EBITDA of 28.7%. During the year, we managed our set net working capital well and kept up diligent investment, but also offloaded the factoring program with an adverse impact of CHF 85 million to the cash flow. The refinancing we drew directly from the existing revolving credit lines. Therefore, we deem the underlying cash generation well within the expected 40%-50% of EBITDA when we correct for this one-time effect and for the termination of this factoring program, which gave us an adverse effect in cash flow. Looking at the balance sheet ratio, after a leveraging of the equity position in the acquisition of Hoffmann, from where we come from, we since have driven equity ratio to meanwhile up to 54% at the year-end. Further debt decrease is envisaged in 2024. Based on a cross-currency swap we installed in the bond we took between Swiss franc and euro, we account for a positive equity effect in 2023 of EUR 20.3 million, which goes directly into equity and strengthens our equity position. We strive for a further deleveraging of the balance sheet to achieve the larger than 60% equity ratio, and we are confident to pursue this in course. Return on capital employed is based on the described profitability at 20.4%, respective, we state a return on invested capital of 8.9%. The difference between the two is broken down into the tax effect of 3.6% and the goodwill impact in capital of 7.9%. Details of the calculation are given to the left. The effective tax rate came significantly up to 23.8%. The reasons for that can be summarized in three brackets. First of all, we have significantly lower profits in low-tax countries like Switzerland. Second, we have exhausted our tax losses carry forward, namely in the U.S. Thirdly, we ended, deliberately, preferred tax schemes which were in place, and we cannot further benefit from those. For 2024, we strive to decrease the tax rate towards the 2022 levels, and we will keep that in focus. Let me summarize the financial key figures. With a successful acquisition of Hoffmann and a considerable headwind from the markets, we discussed high inventory levels of our customers, tighter management along the supply chain, subdued confidence of consumers. We may report a stable performance. The group documents a sound ability to generate cash, and is able to further deleverage the balance sheet, which is very solid. With that, I thank you for your attention and hand back to Jens, who will present to you the development by segment and the outlook. Volker, and yes, welcome back. As we continue with the headlines of the Engineered Components segment, which faced a challenging environment. Mixed development of the segment's divisions were observed. Electronics and industrial were impacted by strong inventory adjustment cycles. On the other side, dynamic growth was achieved with automotive and medical applications. Reported sales amounted to CHF 987.7 million, down by 3.9% to prior year. However, recovery was good in the second half of the year, with growth of 6.2% in the second half 2023 compared to the first half 2023. An EBIT margin of 10.5% documents the impacts by mix effects, inconsistent production and capacity utilization, inflationary cost increases, ongoing Swiss franc appreciation also took a further toll on the EBIT margin. Nevertheless, after a single-digit EBIT margin in the first half 2023, we have seen now a clear improvement, a movement back to double-digit EBIT margins at this point in time. Riveting, as mentioned, becomes part of Engineered Components as of January 1, 2024, and aligns with the automotive and industrial divisions. Mid-term growth and profitability targets of Engineered Components, sorry for that, remain unchanged. Further, we can state the important growth projects develop on track and the innovation pipeline is filled well with new projects. Not just our market-driven innovation projects are well on track. Also, for instance, our in-house digital transformation project, of which we give you a snapshot here, will enable us to further realize productivity improvements in the operations. Currently, we are in rollout of digital production assistance systems across major production sites, because large volume of data calls for big data analytics systems. Along, we enhance manufacturing processes by leveraging digital tools, production and machine data. We improve efficiency and quality of product industrialization, ramp-up, and then also production at maturity. Based on substantial testing over the last years, we expect a boost of productivity of the connected equipment yearly by an additional 2% to 3%. The activities are led by a specialized internal digital transformation team for the manufacturing operations. In Fastening Systems segment, the strong position in the construction market was defended. Reported sales of CHF 615.3 million were generated in the full year 2023, which is a -4.6% versus prior year. On comparable basis, slight growth of 0.7% was achieved. Over the course of the year, the segment was negatively impacted by weakened market environment and occasionally high inventories across the entire value chain. An EBIT margin of 14.9% resulted comfortably within the target range. Riveting, also here, becomes part of Engineered Components as of January 1, 2024, and aligns with the automotive and industrial divisions. Mid-term growth and profitability targets of Fastening Systems segment remains unchanged. Last but not least, important new product introductions are ready to be launched. These just mentioned ongoing market introduction of product innovations will add additional flexibility and options for environmental footprint reduction to the customer installation crews. These are yet individually small steps, but important drivers in the daily hunt for cost savings and environmental improvements on our customer side. We start here from the left side, you see the ISOVAL field fastening solution, which is now available in a battery version. With that, much easier for the installer to move around the building, install faster, more flexible, the installation points, and with that, increase productivity and reduce cost to the customer. In the middle, we see a new full stainless steel self-drilling screw, which has a considerably lower carbon footprint than the previous version, the bi-metal screw, and is also easier to install and to handle. On the right side, we see the new centering sleeve of the CenterPoint system, which is made out of biodegradable plastics and further helps to fasten more secure and at lower cost. This is mainly used for aesthetics, facade sheets which need to be installed without being scratched or damaged. Also here, we help the installer to do it better, faster, with higher quality. Also the customer does not need to take care of the scrap which is producing because that's biodegradable and he can just leave it down in the soil on the construction site. In the Distribution & Logistics segment, we realized the potential earlier than expected. Overall, good market demand led to reported sales of CHF 1.487 billion, which is +38.7% versus prior year. After a strong first half of the year, market demand deteriorated over the course of the year. The decline in order intake was partially offset by the high order backlog which was there in place before. Scope effects from the first time consolidation of Hoffmann for the four months from January to April contributed 37.3% to total growth of the segment. Strong sales growth, prudent cost management and price management, and the inclusion of Hoffmann enabled an EBIT margin of 11.1%, or CHF 164 million, which represents an increase of 60.5% versus prior year. Since we talk about increasing, we should also mention the ongoing drive with high focus on market introduction of digital solutions, expected to add additional revenue and margins in future to the existing bread and butter business of Distribution & Logistics. Because digitization of products and processes belongs nowadays to the core competencies and follow four clear strategic initiatives as we see here below. First off, I have to mention a team of around 60 experts from sales, product management, IT, and finance is working on these initiatives. Initiative number one is optimizing, simplifying, and also tailor-making the customer experience by enhancing all frontend channels like, for instance, e-shop. Initiative number two is harmonization and digitization of internal processes by switching to the next generation ERP system, that's the S/4HANA. Initiative number three is then leverage data and analytics capabilities to realize analysis such as product recommendations and demand forecasts, kind of giving the customer more information of potentially what he needs and what he needs to look out for, and what additional products he could use from us in order to improve his productivity. Initiative number four is implementation of Industry 4.0 solutions with clear focus on enabling customer solutions such as automated supply of indirect materials to the factory floor. So this could be, for instance, a cabinet you have on the factory floor, and every time you take something out, the system replaces it automatically, so you don't need to take care about your orderings anymore. It's always there when you need it, the specific supply you need for your production activity. With that, I come to the outlook at 2024. The guidance for full year 2024 is basically focusing on growth and profitability. Nevertheless, I have to say the outlook continues to be characterized by considerable uncertainty. This because of economic and geopolitical developments. In this volatile environment, coupled with low visibility, ensuring maximum customer focus, continuing innovation projects to realize future growth, and ensuring efficient and profitable business processes remain the highest priority. SFS wants to identify opportunities and possibilities that the current changes bring with them at an early stage and consistently use them based on the communicated midterm guidance. For the year 2024, SFS expects an EBIT margin around the previous year level. Because we just do not have visibility, and also because we believe the research out there is well-balanced, good in place. We have, at this point in time, nothing new to add, no additional data points. Due to the described environment, we further sharpen our strategic priorities through a careful focus on our main strengths, which we seek to take one step further. This is diversification through a balanced focus on different regions, end markets, and distribution channels. On the mega trends, we focus on application areas with strong underlying growth drivers. On the local for local, it's the close customer relationship, which is essential for the successful realization of our value proposition. This strength, going hand in hand with the superior supply reliability, thanks to short and robust supply chains, which we employ with our local for local strategy. Then we certainly focus on technology. The maintenance of a clear core set of tooling-based technologies allows leadership in such technologies. Standardized processes, systems, and equipment reduce risks and increase flexibility overall. Solid financing as well. Good profitability and a solid balance sheet enable ongoing investments in innovations and the implementation of growth projects. With this, we are approaching the end of the active presentation of full-year 2023 results and are now available for your questions. We first take the questions from the room here and then switch to the chat. Before we do so, we carry over here a table to the middle and then be ready for you to answer your questions. Maybe give us here 2 more minutes. Then there's a microphone available, so if you hold up your hand, you will get access to the microphone, and you can ask your question there. Patrick, huh? You. Thank you. Hello. Thank you for taking my questions. Patrick Bironberg. I have a couple of questions. Sorry for that. Maybe I missed this one, but how was your start into 2024, and do you see a sequential improvement in Q1 versus Q4? This would be my first question. Then, maybe the second one would be, let me see. Yeah. Can you remind us your EBIT margin guidance for all 3 segments, and how do you see margins evolving within, let's say, the guided margin range for 2024? These were the 2 first questions, and I'll having some follow-up. I will take the first question, Volker, the second one later on. Yes, start into the year 2024, more or less, we can say we see a continuous up and down. Very high volatility already since mid of last year. Meaning one month you have high order income, one month it's lower, it's an adjustment. There's no clear direction which is visible, whether it's a down or an up direction, it's just a volatility on a high level. This is owed more or less also to the, I would say, the inventory adjustment cycle in which we are still with most end markets. Meaning we have more than 100,000 customers, and each one is going through an adjustment cycle, and depending on their replenishment cycle, we have a strong month and maybe a weaker month overall. I think that's information number one. Yes, it remains volatile, and we expect for the first half of the year to not have clarity in which direction it will go. Second half of the year is today unknown. Usually, we have, I would say, an indication of what second half will do. At this point in time, the visibility is just not given. Too many unknowns, geopolitical challenges, which we see exit out of China, out of many industries. The conflict, Ukraine-Russia, which is dampening demand in Europe. Consumer confidence, which is not high at this point in time. Then election year in the United States, which can go in 2 completely different direction. We see a certain reluctantness in business to make decisions. Just holding back. That's what we see on a daily basis. This is with the existing base business which we have. There it's an up and down. On the other side, when we take a look at the innovation projects, we are very comfortable, and that's the bread and the butter for the future. We see, as we said, in Engineered Components, the pipeline is full. I would say we rather have to be more selective than the other way around. I believe in Fastening Systems and Distribution & Logistics, we have a very strong position in the market. We are the innovator, we are the leader, we are the one to go to to solve problems. Especially, I think that's the huge opportunity at this time, all of our customers have a P&L challenge. They have higher personnel costs, they have inflationary costs, and that's the right time exactly for us to come in because we sell productivity improvements, and that's what they need at this time. From my side, optimistic about the market position and gaining relative market share. On the volume, we are not sure yet. That's maybe on point number one, yeah? Point number two, when we give the guidance of the 12%-15% in midterm, we go to the segments, and we stick with Engineered Components with the 18%-21%. We stick to Fastening Systems with the 14%-17%. We stick, and we documented the EBIT margin in Distribution & Logistics of 8%-11%. We have the ambition to go double digit here, and we are on a good track. I think underlying is we are prepared and ready to take microeconomic pickups when they happen in our end markets, and that's also why we keep the investment pipeline open and prepare ourselves for the ramp-up of the product mentioned, yeah. Thank you very much. Maybe if you don't mind, two follow-up question here. Can you remind us where you're currently having some ramp-up in your production, and what could be the costs related to this ramp-up process? This would be my third, and the last one is how you see input pricing this year, so raw mats. What about product pricing? Mm-hmm. First, with the ramp-ups, we have in electronics, a further ramp-up in site in Nantong for smartphone customers, where we implemented the stamping technology as of last year and were able to acquire this new technology and share wallet with our customers on stamping technology. in the year 2024, we expect to do another larger step within this ramp-up in this technology, get more volume there from our customers. That's one direction. That's in China and electronics. The second direction, also in Engineered Components, is with the electronic driving brakes. Here we have major ramp-ups in the U.S., which are going along, and we have major ramp-ups here at site Heerbrugg, which are going along. These are the large projects which we usually talk about, present to you. Behind that, kind of in the second row, is usually a range of 10%-14% of new business, which we implement annually and which are usually also going into ramp-up. Smaller scale, not as CapEx-intensive overall, but I think it's important to get this brief and taste that ramp-ups is a continuous ongoing business which we manage and do. Certainly, with the larger projects, as I mentioned, we have building extensions, we have substantial new machines and purchases we needed to do. We were seeing that also then in the profitability, that second half of last year was loaded with personnel and depreciation from these ramp-ups, which did not materialize yet on the top line. So that will be the year 2024 that we'll see major steps in the ramp-up and in the year 2025. When we look to the input cost side, energy, we see that normalizing out a bit. We've seen ridiculous peaks at times, and they do not happen anymore. It normalized. Although it normalized at a higher level, we remain comfortably within the 1%-2% range. When we look at raw materials, that again flattened out and reduced from its peaks in 2022. We see a trend of slightly reducing, generally speaking. Transportation prices, I would say we came down, right? That again, the prices that we've seen in the heydays, they're gone, and it is much more stable. From a personnel cost point of view, we see along inflation, the pay rising. Here and there, we expand workforce, but that is well within budgeted and projected limits. Thank you. Hello. Octavian. Hi. Thank you for taking my questions. I would like to start first with a brief follow-up. I had the same question on the ramp-up. Can you quantify how much it impacted your cost base last year? Quantify the cost base? I can quantify that the ramp-up in terms of total sales volume in 2024 will be EUR 20 million in ramp-up, and usually there is a contribution margin of around 75%-80%. If I make the difference, I exclude the 20, take the margin of the rest of the group, make the difference, I get more or less to those. Exactly, yes. Okay. Good. Thank you for this help. My questions on the margin, again, you mentioned, Volker, that, particularly in H2, or the difference between H2 and H1 profitability was due to mix. You mean mix of the three segments, or mix? Yeah in terms of products within the segments? Well, there are two factors in it, but the predominant factor is that usually we would see a very strong market in electrical and electronics end market, a very strong second half year. This year we would have not seen such a peak, and that gives us that effect in mix. Underlying, and that goes for the whole year, we have seen mixed effects towards other products and we have seen also some extent of price management. Okay. The other question on this subject is on the operating leverage. You sort of said that the volumes were a headwind, but you did not mention it when you spoke about it. So I was wondering if, again, there, you can say how much is the effect of operating leverage on your margin. Overall, I think we can say that the volume have stagnated overall. What we have seen is mainly that we had organic sales growth, through price adjustment, price management on one side, and here and there some new customers which came along. But largely, we can say the volumes have stabilized. Okay. Because I always thought that in Engineered Components, in particular, when you have the capacity going up, then you have a good operating leverage. Exactly The other way around. We also clearly mentioned that we had an underutilization in quite a few manufacturing sites, because of the cyclicality, stock adjustments on the customer side. Yeah. We have seen good growth in Automotive and Medical, but we have seen a rather negative growth development on the industrial and electronic side. Okay. Good. I would have two more, if I may. One is directly to you regarding these productivity initiatives in Engineered Components. If you can tell a little bit more why you need that really, and what can be expected in terms of margin uplift from those measures. Certainly. As we have seen, we had last year, mid-year, record low EBIT margin in Engineered Components, due to mainly, I would say two factors. First is underutilization of production sites and secondly is then also inflationary cost increases, which we were not able to bring forward to customers as quickly as we would wish to do so. Now going forward, we see the utilization slowly but surely increasing, also because of the new ramp-ups, which we had also underutilized capacity there. Secondly, we also see continued price increases to the customer sites, which we are carrying out. So there is positive effects from two sides, but this will not be an easy swing up, that we say, "Oh, 2024 will correct it." This will take probably an additional two, maybe even three years until we are back into the range of 18%-21% EBIT margin. The environment is too volatile and again, the capacity is a cost. It is fixed cost, so to say, which is there waiting for orders. Okay. The last question, maybe something for the end of the Q&A session, I would like to hear, you appointed two new managers for the division Automotive and Construction. I imagine they are here, so I would like to hear from them what their ideas are and their plans for these two divisions. They are not available here on this call. Oh. Yes. I can say a few words- Okay, then go ahead to that. Yes, we have two changes. We have in division Automotive, if we start alphabetically, we have Alfred Schneider, who went into retirement or will go now into retirement as of May. He has been with SFS 37 years. He took over the Automotive business in the year 2008, and he had, I would say, a particular focus on globalizing our Automotive business and also position SFS, especially with these new braking systems applications. Urs Langenauer is now taking over as of January 1st. Urs Langenauer is with SFS since 1995. He made his apprenticeship here. He was then in the United States for a little bit more than 10 years or doing the Automotive business, or being in charge of the Automotive business. Then as of 2019, he took over the riveting division and relocated with his family to Frankfurt in Germany. There, we had also a particular challenging situation at that time. We had lacking growth. Profitability was also not there where we wanted to see it, and he has turned it around. We have seen now last year, organic growth with riveting. We have seen good EBIT margins. He will take now this Automotive portion of the riveting division along with him into the Automotive division, which he is now also responsible for, and we are convinced he is now exactly the right person for the challenges which we see now, focusing on efficiency, focusing on improving the EBIT margin. We have enough projects in the pipeline. It is mainly a topic now of price negotiation with customers and once again, focusing on efficiency. So well-balanced, and I would say well capable of managing the next step in the Automotive division's development within the SFS Group. Secondly, we have Thomas Jung, who joined the SFS Group back, I think, in 2010, '11. At that time, he first off, was in charge of our Construction division for the German market. Then moved into a position of being head of region in Middle and Eastern Europe for division Construction. Then around four years ago, he relocated with his family to North America and has been the regional manager for the Construction division in the U.S. and Canada. Also, he certainly helped us to further enhance our footprint in the North America through M&As, acquisitions, which he supported and has also a very positive track record in the developing the top line, but also the bottom line of our Construction business in the Americas. As of January 1st, he is now in charge of the division and managing the full Construction division. We have to keep in mind, the American portion of the Construction division is around 50%. So now he took over the additional 50% of the Construction division. Also with him, we are convinced, right capabilities, right experience, very sales-focused and also high focus on digitization and further growing of our trading business within the Construction division. That may be a few words on the two gentlemen. You get a new microphone. It has to work. Yeah. Maybe. Thank you. Stefanie Scholtysik from Mirabaud. I also have a couple of questions, and one is on your guidance. One important factor for your EBIT margin is actually operating leverage. You saying having stable EBIT margin in 2024, you must have a certain view on organic growth. Can you please share with us your base case scenario for your top line? You can on the EBIT margin, so I am sure you should be able to do that on the top line as well. First one. Yeah. As you see, the visibility is low, and that is why we said, the right message to everyone, to be open, clear, and transparent, is to say, we have no new piece of information for 2024. We believe the current status is what we most likely see the best or can replicate the best at this point in time with the data we have. We certainly have major ramp-up projects, which will bring fresh revenue in. On the other hand, we see that existing business is going up and going down, bumping along the road a little bit. Due to that, we do not have a concrete model at this point in time. We have a budget. We have an expectation for the year, certainly. But I would say underlying the data points, which we usually have, is just too soft to give a clear and firm commitment here to the market. We believe stating an EBIT margin around the current level is good practice to clearly express the challenges in visibility. Certainly, as soon as we see a pickup in demand, EBIT margin will step up instantly because, as you said, it's usually leverage. It's utilization of installed capacity, which is there. Commitments which we also have made. We need to maintain this capacity towards the customer. That's another challenge, certainly. And we believe further in the year, we'll be probably in a better position to answer this question. But today, visibility is just not there. Okay, thank you. And maybe a second one on Hoffmann. You increased EBIT margin there, which is nice. What was the reason for it? Was it the implementation of your pricing strategy or other factors that lead to a higher EBIT margin? And what is there more to come in that respect? And also Hoffmann having a high exposure to Germany, how do you view 2024 for the D&L segment? Yeah. In the year 2023, certainly, we have seen good EBIT margin overall, and this is certainly owed to the fact that the year started much better than expected. Remember, last year at this point in time, we all were concerned about energy crisis, about not having enough electricity and maybe gas. And the industry prepared itself for probably a slowdown. Later on, when the year started, it was very clear and visible that this will not be happening, and many customers ordered at record pace. And this very high utilization leverage helped us to also achieve a good EBIT margin overall, which we were able to carry along the year. Secondly, also due to good price management on the supply side, but also on the customer side, we're able to produce a healthy EBIT margin, which we believe, which we also need in future. Those were probably the two major reasons. Going forward, 2024 also here it will be vital to understand where the ordering books are of our customers. Are they average? Are they low? Are they high? That's certainly a question of visibility again. We also expect for 2024 somewhat an inventory adjustment cycle with our Distribution & Logistics customers, but we cannot tell you the magnitude yet. This depends also on the order intake they get from their customer along the way. Probably the first six months will be very important to watch our customer base machine builders, industrial producers on their order intake level, on how many new orders they get. So it's a little bit wait and see. To also explain why are we in such a situation, we have to imagine we came out of COVID and had supply chain shortages all around, so customers increased their bookings, and we had record high bookings at that time. Now it is a normal phase that customers go down and normalize their order books more or less and their inventories. But plan-wise, the visibility and the adjustment levels they need to do and need to have are just not matching yet. When we talk to our customers, they have challenges, because of complexity, because of all the large product lines they carry to clearly give us an answer and say, market demand, is it strong? Yes. But what does it mean for the supply they need? Because in between is the inventory and certain uncertainties there. I would say it is a pendulum that swing very hard to the left side and now swings to the right side. We have here to be a little bit patient. I believe in the next 6, 9 months, this will solve out, this will solve itself, and then we will see a more, I would say, stable, steady path again. Disruption is always the worst enemy to any supply chain and to any supply chain manager because he lost his capability to indicate to you where exactly he stands with his supply chain. At the same time, we may mention that we see a clear need of these guys to increase their productivity, and as soon as that pendulum comes back, they will act on that. Probably they are not acting at the moment as decisive as they should or could, but when the pendulum comes back, and that is probably true for several of our end markets, when the economics in these end markets turn around or give an impulse, we are certainly prepared then to pick up that demand and go with the end market. And maybe a last one on Hoffmann, the integration. What were the sales synergies? Were you able to capture any sales synergies so far last year? What are the next projects, and can you give us some concrete examples how this will look like? Mm-hmm. We are closing the integration as of May this year, kind of formally. We have gone a long way with each other, very good relations, well-aligned with each other. I think find a very good constellation where we can produce a win-win situation for everyone. So that's on the positive side, clearly to note. Secondly, we are working also on strategic projects where we then also have synergies where we can probably gain more share of wallet with customers. But we have to keep in mind, because before we already were in a partnership situation, we had no overlap, so there was no short-term gains which we could kind of produce. But mid and long term, we are working, as we said, on a project to implement product lines from SFS D&L Switzerland with Hoffmann. That's due to be decided formally in the first half of this year, and then a rollout plan will be done. We have also to bear a little bit in mind, it is fairly complex. This is a product line with around 70,000, 75,000 SKUs. So this will need to be well planned and managed and the resources brought into place because as soon as we switch it on in the e-shop and customer order, they expect orders within 24 hours at their door. So whatever we plan, we need to do it very precisely, high quality, because there is an excellent reputation out there of Hoffmann, and we would not imagine, or we do not want to imagine jeopardizing this reputation by doing maybe a not thought-through implementation of additional product lines. So on track, positive, but it will certainly take time until we'll see their full momentum. Probably will take 2, 3 years until we see substantial sales revenues from those synergies. Ahead or before that, what we see right now is the ramp-up of new innovations Hoffmann developed, and they also need now sales focus and capacity to implement. So we'll do it step by step. So digitization right now is the first priority. Here, we invested substantial amount of money in these new solutions. This will be the focus the next 2 to 3 years, and then right after, we'll follow with additional product lines in the rollout. Besides that, we have also geographic expansions in U.S.A., India, and China going on as we speak. So the plate is very well loaded with new projects and initiatives. Ingo Stößel from UBS. Just one question. Regarding your plans to de-lever, can you give us some guidance on what that means exactly? Are you looking to get all the way back to net cash, or will you continue running a certain amount of net debt for the foreseeable future? What we explicitly guide to the outlook is that we are striving for an equity ratio of 60% plus. When you look at our bond structure, then you see that one of the bonds becomes mature next year. So we have a revolver in place, and we are making our minds up as towards autumn where we go. With that, we will certainly then use our cash position and act on the debt. Whether that necessarily means a net cash position remains to be seen. Thank you. Any further questions? I see in the chat we have no question at this time. Everyone seems to be hungry. Please. Yes. Yeah. Stefan Soller Capital. Two quick questions. Last September, we met towards the end of September, you just started with the new capacity or new fab in Nantong. Back then, obviously, it was a bit too early to ask how that ramp-up went well. Now it's probably a better time to do that. That's my first question. The second one is regarding pruning. That's also something that we spoke about last September, that you wanted to increase the pruning. I think it was specifically in the industrial segment. Just briefly wanted to know how you're going there to reduce cost. Obviously, they are also in that segment. Thank you. Exactly. Yeah. Two good questions. First off, yes, Nantong, we had the ramp-up, with stamping technology. The new factory or the first portion of the new factory went into ramp-up, and we have seen that we achieved the objectives as envisioned. We have gotten, I would say, all allocation as agreed, and have also seen that especially the ramp-up also helped us, in Engineered Components, the top line and the bottom line, to improve the results compared to mid-year of last year. Overall, we believe a strong success, once again, showing the strong capabilities of our Nantong facility and the capability to reduce suppliers for our customers. Here we are certainly good on track. The second portion of the building is now finished, and we expect, once again, for 2024, a further ramp-up there. On the pruning side, that's mainly division Automotive, where we clearly said it's now time with all the new projects coming in, the new business, that we take a look at the existing legacy business and start some pruning activities. Here we have intensive discussions with our customers at this point in time, on how this pruning shall go ahead. Right now we do not have any final answers we can give to you, but I would say the length of discussions already show that our customers have challenges finding other sources for the products which we would like to prune. We need to find an agreement with our customers on how we manage that. But certainly high push on that side to also, I would say, adjust the portfolio of business lines. Thank you. Thank you. I have two follow-ups as well. Maybe on the more financially use, the transaction effect from foreign exchange. Can you quantify how much it impacted the margin, that one? The transaction effect itself, I would need to go back into that. Come back. Okay, and the second on automotive regarding some of the positioning. I hear you have ramp ups in Switzerland, of course, in the U.S., and your products, then they go globally with your clients. Can you tell us something about your positioning in China or with Chinese clients, particularly in the EV segment, which according to every estimate, they will be those with the volumes in the future? Mm-hmm. Exactly. That's a good question, and here what we have to keep in mind is the vehicle itself. If we say the vehicle is the envelope, yeah? In the envelope inside, you will find the same tier one suppliers as you have with the other local market participants. This is a mix of Korean, Japanese, Chinese, Western tier ones, which supply into it. Through our relationship with those tier ones, we are also in those new vehicles. For instance, when we just take a look at ABS systems, we have more than 50% market share with ABS systems in China. So we are specified in, I would say, almost all brands on almost all geographical representatives of the automotive industry doing business in China, including the Chinese. Secondly, when we then take a look at new applications, whether it is electric parking brake or driving brake, also there the technology on the tier 1 level is usually Western technology. It is not Chinese technology. Chinese players have not yet developed to that size, but the ones which are developing are also in contact with us. We have, I would say, smaller volume business with both applications with local Chinese. That is the nice part. Usually, the industry focuses very much on the OEM and then maybe also on the tier. But below the component side is too little of a strategic target to go after. It is too distributed. It is too niche. It is not in target to be a national, I would say, topic to convert it all to Chinese. Thirdly, I can mention in China, we are considered a Chinese company. We have Chinese management. We have local facilities. It is not so that we are now under the magnifying light due to the trade conflicts that customers say we do not want to do business with SFS or with Unisteel because this is a Western company. That is not the case. We are on that side well-positioned, ready to take market share, and already see good inroads with Chinese customers. If I may, thank you very much. Very interesting. If I may, another one on this one. You do not see the Chinese like BYD, which is the number one name that everybody speaks, behaving like they used to behave, the Toyotas building up their keiretsus and then coming in. That is not the same. Exactly. It is not the same. The Korean and the Japanese used to do that. Was it Koreans? Yes. Mm-hmm. The Chinese, we don't see that. Okay, thank you. Then we have questions from the chat. Chat here, yes. Maybe. First one, yeah. Maybe I missed that. Question is from Christian Barder at ZKB. Maybe I missed that. Please quantify your capacity utilization in 2023. A very challenging question because since we have not a homogeneous business, we have some areas like aerospace where we are in ramp up, where we have well utilized the capacities, probably around 90%-95%. Then we have also areas where we see an underutilization, which is probably more with the hinge industry, kitchen cabinets, and such, which go to an inventory cycle. There we probably have a capacity utilization of around 75%-80%. This is probably the range in which we see the operations running. On the medical side, we are fully booked. Here we have capacity constraints already booked for the year. Their capacity utilization is closer to 100%. They are working five, six days a week. Considering your earlier comment, it seems your workforce will increase slightly in 2024. Overall, once again, it depends on the development. Overall, we have staffed now our organization, I would say, accurately. As just mentioned, we also have here and there some pockets where we are not completely and fully utilized yet. It depends where the growth comes in the year 2024. If growth comes more on the medical side, we will add more personnel. If growth comes more on the automotive and electronic side, probably there is less of an increase overall. Certainly when you check back in the half year, we will have a seasonal increase, and then second half of the year is a seasonal decrease. We will not see that 2024 will be a year where we will substantially be hiring and increasing the number of employees. Please quantify your CapEx budget for 2024, a range at least, and early indication of 2025. Given what I said before, we are striving for the 4%-6% bracket in sales. We will handle that cautiously and strive to be in that bracket. That is going to be our aim also mid and long term to drive that down as we have shifted capital needs with a higher weight in Distribution & Logistics. We have a question from Tobias Fahrenholz, Stifel. Portfolio fine-tuning efficiency measures, looking at your less profitable business in the Engineered Components segment, that could be partly discontinued, especially within the automotive part. What could be the special negative top-line effect, which we might look for in 2024, 2025? Good question, which we ask, and actually yes, that is where we also seek an answer to at this point in time with our customers. What we see is that the orders are more sticky than maybe what we imagine or have imagined. That means getting rid of product lines, which we maybe would like to phase out, is more challenging because we understand customers do not have many options at this time or the flexibility to move quickly. So we quantified it at one point in time and said, maybe it will be around 30 to 50 million of business over two years, which we maybe phase out or which we maybe prune away. We are still a little bit away from it, cannot give a clear indication. We believe that automotive business, all in all, will still be growing, maybe just at a lesser pace. As we gradually ramp up new business, we maybe see here and there some small pockets of business which we prune away. Good. We have from Anca Rafaisz from Vontobel, a question. In Fastening Systems, margin dropped to below the target range in the second half 2023. Is it now increasingly challenging to remain in the target range in 2024? We said that Fastening Systems is heavily impacted by this destocking effect. We saw that particularly to the latter of the last year and in some pockets. Certainly also, we saw interest rates impacting or at least slowing down some of the investment projects. So there was a situation, a particular situation in the second half year last year. We are confident that we are. We confidently stick to the bracket of 14%-17% in that segment. Are well-positioned, close to the customer, able to fast fulfill the need of our customers who want to keep their construction sites moving. Therefore we see it challenging, yes, but we are also very confident to stay within that bracket. Good. No more questions from the chat, Alessandro Muszke. Since we were speaking about this SFS margin, I was wondering if the effect of transferring riveting out has an impact on the incoming division and on the outgoing division. We split riveting into the respective end markets. On the overall, given the size, we would not see that as a reason for adapting our brackets. I understand that, but I still wonder if it could go into Engineered Components and be sort of subsidized, and then maybe that's why Construction goes back into the range, but in reality not doing anything. Or maybe it's on average, so it is a- They are very close to each other. Very close. Very close. As we said, we were splitting the division at the point in time where the division was in a very good cycle, very fit also to take that leap, and we are satisfied with the integration on the other side. All right, great. Thanks. Good. Before we come to an end, I have to make a personal announcement. You all witnessed last year, Alessandro took a different position on a number, and he proved me to be wrong, and I lost on that bet a bottle of wine. I just want to fulfill here duty of honor and debt and hand you over that. I hope we will conclude with that. Thank you very much, Alessandro. Good. Welcome. With that, we conclude for today. Thank you for coming. Thank you for your interest. Please be aware of our next dates here, annual general meeting, publication of half-year results, and then looking forward to an investor day, which we have here on site September 5th, and there we will certainly be able to talk more on the ramp-up of the new programs and see where we stand overall with the business cycle. Thank you all. Enjoy lunch. See you soon again. Bye-bye. Thank you very much.