Earnings Call: H1 2021

Jul 20, 2021

Ladies and gentlemen, welcome to the Half Year Results 2021 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Jens Preu, Chief Executive Officer. Please go ahead, sir. Good morning, and welcome to the presentation of our first half twenty twenty one results. Today's speakers are Volker Dossmann, CFO and Marcel Jensborg, CEO of the SFS Group. The agenda over the next 60 minutes will be key takeaways, development by segment, development of key financials, updated guidance 2021, group priorities, Q and A before closing. I will start with the key takeaways first half twenty twenty one, which can be best summarized as convincing sales and profitability improvement realized. Strong first half twenty twenty one results were achieved, supported by dynamic market environment, retained capacity and capabilities to fulfill customer requirements as well as continued attention to employee health. SFS has taken advantage of driving market demand. First half twenty twenty one gross sales amounted to CHF 957,800,000 plus 23.8 percent versus prior year, driven mainly by segment's Engineered Components and Fastening Systems. High capacity utilization, proactive price management and cost consciousness led to operating profit margin peaking at 17.1%. Progress on infrastructure projects were achieved as planned with most recently announced expansion of production platform in Nantong, China planned to be commissioned in autumn 2023. Highlights, noteworthy from the May published sustainability report for the period 2020 are number of work related accidents reduced by another 13.3%, 5% of workforce enrolled into an education program, implementation of a CO2 road map containing measurable targets for reducing CO2 emissions. Let us for a moment further focus on sustainability. What are now the key elements to improve sustainable development? 1st and foremost, it's the management attention on regular reporting on progress. The management remuneration being tied to ESG KPIs, focusing of the organization on the core KPIs aligned with the materiality analysis of economic performance, occupational health and safety, training and education, emission reduction, socioeconomic compliance. Another element, the regular public reporting as well as the establishment of a CO2 roadmap to reduce CO2 emission per SCO-1 and SCO-two by greater than 90% by 2,030, Scope 3 greater than 90% by 2,040. As well as the last element, continued focus on the set goals and the update of the materiality assessment in 2021. The materiality analysis, according to GI, as just mentioned, identifies the priorities, like the milestone to reduce our mission by greater than 90% through the known SFS value engineering approach. By 2,030, we expect to consume less than 10% nonrenewable energy compared to today before potentially buying any certificates. An important lever will be the switch to green electricity as electricity consumption is the main trigger for the emission in scope 12. With that, strongly underlying that sustainable thinking and acting is part of our DNA from our value proposition as of today 2, a holistic view on sustainability where direct and indirect costs are considered for social, health and safety related risks as well as the use of resources, production of emissions, waste and disposals. Until today, society in general has not considered cost for environmental pollution in product pricing. But as we see and experience currently, this is being changed by legislation and therefore will help us to quantify and argue such important cost elements with our customers in future in much more detail, hence, further helping us in improving the meaning and relevance of our value proposition to our customers, continuing with the development by segment. Starting with the headlines of the Engineered Components segment, which participated at a strong market recovery. Due to that recovery, we can report positive development in most end markets, resulting in a first half twenty twenty one reported sales of CHF 492,100,000, representing a +29.5 percent year over year growth and a +8.3 percent versus first half of twenty nineteen year growth. Pronounced recovery in automotive and most industrial markets is progressing. As well, electronics is moving forward with continued strong demand patterns. The local for local strategy supported largely high delivery performance and allowed for selective market share gains. The global medical platform positioning has been positively received by customers. New projects, especially for our Malaysian site, are in discussion with potential new and existing customers. The high utilization of production capacities resulting in a strong EBIT margin of 18.7%. The key message of the division automotive pent up demand driving market environment further underlines the just mentioned development of the segment. The recovery in demand across regions and applications is ongoing, however, dampened by shortages in semiconductor supply. Ongoing electrification of vehicles continue to be the major engine for innovation and growth of the division, evidenced by new substantial project wins in the area of electric brake applications as expected and initially envisioned for the year 2021. The building expansion project for electric brake systems production in Helbrooke, Switzerland is developing as planned and will be essential to provide the needed space for the just mentioned recent project wins. Project conditions market conditions are expected to largely remain unchanged, supporting the SFS Automotive division's position to outgrow the market. The key message of the division Electronics, stable growth across all applications of end users and supply chain in electronics alike. Continued growth in the areas of mobile devices and lifestyle electronics is supported by the COVID-nineteen related ongoing push for home office work. The positive demand pattern for HDD applications is stimulated by cloud and enterprise computing. Shortages in semiconductor supply creating some degree of volatility. The needed expansion of the Nantong platform is approved and in planning stage. For fiscal year 2021, we For fiscal year 2021, we expect new positive development versus previous year. The expansion of the production platform, Nantong, China, as visualized on the slide, will therefore provide the needed capacity for future growth. The platform combines all SFS core technologies under one roof and was occupied in 2018. Ongoing growth of mobile devices, lifestyle electronics and demand from other divisions requiring the expansion. Floor space will increase by approximately 70% to totally 130,000 square meters and shall be ready for occupation in autumn 2023. Total investment spending is budgeted for around CHF 32,000,000. The key message from the division industrial, continued recovery in most niche markets, underlines the return to the growth track. However, development of demand is still varying across individual business units. Currently, we see strong demand for furniture, cutting tools and general industrial applications. The aircraft business is still expected to continue to operate in stabilized but challenging environment for the next 12 to 24 months at least. The expected ongoing good demand in the second half of the year will enable the division to return back to organic growth in fiscal year 2021. The key messages of the division Medical can be summarized with positive customer sentiment to the global platform development. However, currently the division is still experiencing a challenging market environment for orthopedic products due to continued postponement of elective surgeries. Besides, for the other roughly threefour of the business, the division is experiencing an ongoing positive development in these application areas. The buildup of the global manufacturing platform continues as planned. Positive customer feedback and good project inflow in Europe and Asia is observed. A still only slightly positive development for fiscal year 2021 is expected, hampered by the mentioned orthopedics business and phase out of some lower margin products. We're coming now to the headlines of the Fastening Systems segment, where the 2 divisions clearly have taken advantage from the dynamic market environment. Continued high demand in construction and industrial manufacturing industries and pent up demand in automotive market resulted in the first half twenty twenty one reported sales of CHF 293,100,000, representing a +25.3 percent year over year growth and a +18 percent growth versus first half twenty nineteen. The currently high market demand put supply chains and material prices under considerable strain. The strong performance orientation of the involved two divisions allowed them to navigate well through the challenging environment and had them to benefit from market opportunities. High capacity utilization and thorough cost management resulted in a record EBIT of 17.7%. Looking into the details on the development with the Construction division, we can probably best summarize it by strong demand and capacity utilization. The fast relevant European and North American construction market continue its positive development, driven by rebound effects and moved up orders. Extraordinary demand in all application areas across Europe and North America resulted in historically high sales. Increasing signs of overheating is expected to result in a slowdown of construction projects and potentially normalization of demand in the second half of the year. Nevertheless, the division expects dynamic growth in the fiscal year 2021. In addition, the Construction division broadened its market access in Denmark by the acquisition of Chevit. Cheviot is a Denmark based provider of fastening solutions, publications in high quality building envelope. The acquisition allows the construction division expansion of market access into the Danish construction industry. High technology and application competence, including specific services are at the core of the acquired capabilities. The key figures for the fiscal year 2020 are sales of approximately EUR 5,000,000 and a core staff of 10 employees. First time consolidation will be as per July 1, 2021. Coming to the key messages of the riveting division, continued improvement of performance. Pent up demand in automotive market and recovery of industrial manufacturing industry drove growth across all application areas. Some automotive customers have been, however, negatively impacted by shortage in semiconductor supply. The concluded sale of the Chinese production site, Nantong, and the associated relocation to our Nantong manufacturing hub is expected to yield further efficiency gains. Looking forward, the market environment is expected to remain stable, resulting in organic growth for the fiscal year 2021. Last but not least, the headlines of the Distribution and Autistics segment for an ongoing positive development has been achieved. Overall, good market demand continued in first half twenty twenty one and resulted in reported sales growth of CHF 30,000,000 representing a +8.1 percent year over year growth and a +4.4 percent growth versus first half twenty nineteen. Strong demand from construction customers has been observed along a somewhat still challenging environment in the Milling and Machining end market. High market demand put supply chains and price levels under considerable strain, which is expected to result increasingly in constraints of availability of selected product categories in the second half of the year. The segment expects organic growth of fiscal year 2021. With that, I conclude my explanations and will now hand over to Holker for covering the development of the key financials. Thank you very much, Jens. Good morning, and welcome everybody to this webcast. The positive start into the year held strong into Q2 with slight acceleration on promising level. Our team managed a high utilization and the demanding supply chain making their best to honor our commitment towards our customers. This resulted in stark contrast to first half year in 2020 in a significant improved financial performance. In order to put the performance into perspective as done already by Jens, I shall give occasionally reference to first half year twenty nineteen figures, which we consider as before the pandemic. Although Q1 2021 showed still impacts of reduced capacity due to COVID-nineteen pandemic, we report an overall growth for the 1st 6 months of plus 23.8% versus prior year. In the decomposition, this is predominantly organic growth as foreign exchange impacts and changes in scope balance nearly out. With a slight acceleration in the Q2, the group reached an annual growth since 2019 of approximately 5% year over year, which is well in the bracket of our 3% to 6%, which we aim for mid long term and which we achieved historically through the cycle. The growth is probably based and as a consequence, no short time work regime or reduction on capacity is in place anymore throughout the group. The only exception being one side in aircraft component. Along with the development of the global economy, we have seen negative to flattish growth pattern from 2018 quarter 1 to 2020 when the COVID-nineteen pandemic adds its tribute. However, end of Q3 2021, a rebound 2020, a rebound kicks in. Since SFS refrained predominantly from making redundancies during the pandemic, very swift adaptation of capacity to the new market needs allowed us to honor contracts and thus confirming our position as being a reliable partner across our customer base. Particularly, the automotive industry came back strong despite some volatility due to the supply chain issues, especially in semiconductor. As mentioned before, demand supports the volumes in electronics. In construction, we see historical high levels of sales that have been accomplished partially based on rebound effect, moved up orders and restocking by our customers. We expect this to normalize during second half of this year and slow down slightly. Riveting managed to build up on the recovery in industrial and automotive markets, and we've seen also attractive growth in our segment D and L. Overall, the supply chain management of highest attention in order to act as reliable partners to our customers. Sales breakdown by end market shows the recovery is visible in most end markets with construction making just short of 1 third of the overall, automotive on 23.6% and electronics at 17.8%. Medical remaining in the 7% to 9% corridor for the aforementioned reasons. All end markets, apart from orthopedics and aircraft components, see solid growth. From a regional perspective, Europe being hit hardest in first half twenty twenty came back considerably to 39.2%, followed by America and Asia, which is gaining importance being up 100% 110 basis points. High utilization, cost discipline and decisive pricing initiatives drove EBIT to a normalized level of EUR 161,000,000 or 16.8 percent for the first half of twenty twenty one. EBITDA is at EUR 215,000,000 or 22.4%. Workforce has on a like for like basis increased by 124 FT feet feet feet feet feet feet feet feet feet feet feet feet feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet, which is slower than our overall growth. This leverage is made possible through successful optimization efforts in various plants. To optimize production footprint, division riveting transferred its production in China from Nansha to our site in Nantong. Subsequently, the plant and the respective land rights have been sold. An extraordinary additional book gain of $3,100,000 has been normalized for the reported EBIT of $164,000,000 or 17.1%. As shown on Slide 24, we have experienced considerable dynamics in our end markets during the last three quarters. Given the significant pent up demand paired with material cost increases, which will impact predominantly the second half of the year, we are carefully monitoring profitability as we go forward. Uncertainties stemming from volatile automotive demand and construction industry with signals of overheating influence our guidance, which will be presented to the latter of this presentation. The seasonality which we reported comparing first half to second half year over the last years might not hold as pronounced as in the past. For some end markets, it may even not apply in 2021. For 2020 year end, we present the long term compound average growth rate for the group, which was impacted by the 2020 slowdown to a level of 5.3%. Today, we can confirm our statement that the growth through the cycle holds firm and is around 6% and an EBITDA margin, which is well within the targeted bandwidth. Along with the livelier top line, the net working capital came down to 31.3% of net sales or 113 working days. Seasonality in the net working capital is usually higher at midyear. Demand drove inventory levels with the need for high attention on on time delivery to our customers. Further, receivables management successfully avoided any increase in debtors' risk. Infrastructure projects at Stum in Hallau, Switzerland and for the automotive infrastructure, all 6 here in Herrburg, as well as improvements in machinery and equipment continue. The project of migrating our ERP environment to S4HANA particularly partially is recognized as capital expenditure under the bracket corporate. The majority of these projects will be visible and recognized as CapEx in second half year, and we expect our capital expenditure to be approximately at 7% of sales for the full year. The announced expansion in Ngong Tong will only start in 2022. Free cash flow is compared to prior half year results significantly higher. The reasons being twofold. In absolute terms, operational cash flow reached EUR 136,000,000 and its impact seasonally from payables and receivables. 2nd influencing factor is the continued strong demand that, as said, has meanwhile strained our inventory levels. We have reached already at half year a conversion rate of 41.3% versus EBITDA, which in comparison to prior years is considerably higher. As a result, our equity base has further strengthened and the cash position raised by €35,000,000 versus year end 20 20 to $180,000,000 Included are cash flows from our divestiture, mainly the non shop building and the payout of dividends, which were prior at prior year level. Returns on capital employed increased based on the back of the strengthened EBIT, reflecting utilization of our infrastructure. Calculating on a flat tax rate of 17.5%, we show return on invested capital of 12%, which brings us into the targeted range of returns. The differentiation between return on invested capital and return on capital employed can be decompositioned into tax effects of 5% and the capital impact from goodwill of 11.3%. Let me summarize the financial key figures as a demonstration of stability in the crisis on one hand. On the other hand, the ability to temporarily drive down capacity and costs but swiftly ramp up again. The group is generating cash with speed and reliability standing on a sound balance sheet. With that, I thank you for your attention and hand back to Jens, who will present you the guidance as well as the priorities for the near future. Thank you, Holger, and welcome back, as mentioned, to the guidance for the full year 2021, where expectations have been raised, thanks to organic growth and dynamic business performance. Assuming a continued positive development in the second half of the year, SFS expects organic sales growth to a level of around CHF 1,900,000,000 for the 2021 financial year at an EBIT margin of approximately 15% as we have communicated in June. This corresponds to an annual sales growth of approximately 5% since 2019, which is in line with the original before COVID-nineteen crisis announced midterm guidance. Nevertheless, due to persisting COVID-nineteen pandemic, the outlook for the full financial year 2021 remains subject to risks and uncertainties. Arriving at the last slide of the active part of our presentation and covering the SFS Group priorities continued focus on the organic growth path. As strongly rooted in our DNA, we aim to follow tightly identified and relevant mega trends, which means strengthening of the innovation, in particular in the mega trends digitization and autonomous driving. Under the key priority growth, we focus on further investments in future growth projects, in particular, in the medtech, automotive and electronics sectors. On the employee side, we continue with the important preventive measures to protect our employees' health and safety. On the profitability, we focus on balancing production capacity with demand, ensuring full supply capabilities, while keeping costs under control. Sustainability, as already mentioned, means continued focus on the set goals and an update of the materiality assessment. With that, we are at the end of the active presentation of the first half year results twenty twenty one and now available for your questions. First, we take the questions from the call and after that, switch to the ones from the The first question comes from Alessandro Foletti from Octavian. Please go ahead, sir. Yes, good morning, everyone. Thank you for taking my questions. I have 2 and then a small understanding one. When I look at your guidance for the full year, maintaining the 15% margin after such a strong margin in H1, obviously implies a decline of the margin. Now I wonder if you expect to come out with this guidance, if you expect a reduction of the capacity utilization, particularly in Engineered Components. And if yes, I would like to understand where this capacity utilization sort of reduction comes from? Okay. Yes, good morning, Alessandro. We'll take this question. Jens, I will be answering. First off, we see challenges in the second half of the year, potential challenges ahead of us in Engineered Components. First off, in the automotive segment, I think we have seen a pronounced shortage in semiconductors. Until now, we assume that the total annual car build will be reduced by 2,000,000 cars due to semiconductor shortages. At this point in time, we believe it will be higher. It will be probably around 5,000,000 cars, which will not be built this year due to the shortages, which then later on also result in lower orders from our customers and lower capacity utilizations in our plants in division automotive. Secondly, as we all already also know, the industrial division usually follows the trend of the automotive division by a delay of around 1 quarter, 3 months. So as we still have seen driving demand in industrial, industrial, we would also expect in second half of the year, there will be a certain normalization of the demand pattern in Engineered Components. In Fastening Systems, as we have seen with particularly strong demand patterns in the Construction division, although there, we expect the normalization in the second half of the year, we have not seen that our customers expanded their crews or their capacity in the market. So we believe the strong first half of the year was mainly refilling, restocking of inventory, maybe some prebuying ahead due to increasing price levels or increasing price expectations in construction. And we already have seen that also some in some regions, construction markets have stopped expanding the buildings and waiting until price levels come further down. The riveting division is also tied to Industrial and Automotive, as just mentioned before. So these are the major challenges we see ahead. We certainly have seen a strong first half of the year. We expect a normalization in the second half of the year, and with that also, a lower utilization of our manufacturing plants, which hence naturally is pushing or is taking down the EBIT of Engineered Components and Fastening Systems alike. All right. If I may ask just a quick add on here. What I don't understand so much is that if you will reach the €1,900,000,000 in sales, then you are very likely to have 2 half years with the same sales level plus minus with €10,000,000 difference. So why should the capacity addition be so much lower at the same sales level? That is a good point. It's one is capacity, but then the other is the cost of raw materials, which are increasing. In the first half year, we benefited from still having inventory rated at the lower cost level in second half of the year. We would see that material flows in at the higher pricing point. That's a topic. And then secondly, especially in Engineered Components, the price increases on the raw material side between 2,050 and sometimes 100% of raw material price increases have been only announced to start at the end of Q2. So meaning in Q3 and Q4, we will see a substantial increased pricing level, costing level of the raw materials, which we usually fairly quickly utilize and consume. So this is the second element, lower utilization of the plants and then secondly, also much higher cost on the raw material side in all three segments. All right. Thank you. But then maybe this would be my very small understanding question. Your slide, I think it was to be precise, I think 27, I wrote down where you indicate the seasonality of the EBIT. That slide with the 2 arrows, one pointing up and one pointing down for the EBIT in H2, is there only to tell us that this time it will not happen as normal or? It's actually still a chance that it ends up at 180, is it? Because then I Yes. Certainly, we expect that the arrow goes down. On the other hand, I think when we assumed 2021 development of the year and COVID-nineteen, we were wrong. We expect that by now the COVID-nineteen crisis is behind us, and we understand and see this is not the case. So we remain open here. We may be misunderstand the development and maybe see an upward trend even though we expect a downward trend. I think that's the message on this slide. We expect downward. But on the other hand, you never know, we could also see an upward trend that maybe it's further accelerating in construction. And maybe the slowdown in automotive is not as pronounced as we expected at this point in time. But as you know, SFS, I think, we usually come out with a guidance, which is probably tilted a little bit more to the conservative side and which represents usually a top line and a bottom line results, which we are comfortable to achieve. All right. Thank you very much. If I may, one last one for maybe for the CFO. Since there's a new one now here in charge, I was wondering about the cash to cash cycle. We'll be speaking about that in the past already. Now you're at 109 days. What is your view here? Where can this go? I think the cash to cash cycle at the moment benefited from very much strained inventory levels and is on a more lower end of the bandwidth. We're looking at the more important business portion going into Asia with larger electronics customers, where we face still negotiation on longer payment terms, which we at the moment, can defend. But I think we are seeing us towards the lower end of the bandwidth at the moment just because of inventory effect. And low inventories potentially arming our delivery on time delivery, we must not go into a risk area there. So that's why I would see it as a lower end. Okay. Thank you. That's all from me. The next question comes from Andreas Mueller from ZKB. Please go ahead. Yes, good morning, gentlemen. Thanks for taking my questions. I have also 2 or 3. One was really on the restocking comment you did. I mean, the volumes were immensely growing this quarter. But can you gauge us a bit how much was really underlying demand and how much restocking of these industries, particularly construction or maybe also automotive? Yes. Thank you, Andreas Moller, for your question. Yes, that's certainly a challenge we have overall in business that visibility is not very high in the construction market. Usually, our orders our customers order 24, 48 hours ahead of time. So from that point of view, there's not a lot of visibility we have. And from that point of view, we have to assume that probably half of the sales growth we have experienced in the first half of the year in construction is due to restocking, but also it's probably due to customers new customers not being able to find the products with their existing sources. So meaning the growth roughly has to be divided in half on the construction side. One half is probably sustainable, plus minus. The other half is probably restocking and new customers, which have not been satisfied with their existing resources. When we talk about Automotive division, I think overall there, we have seen the majority of the restocking already in the second half 2020. So the demand pattern as we have seen it now in the first half of twenty twenty one is what we judge through an actual demand pattern, meaning cars being built and there's hardly any space or place between us and the car manufacturers to build up inventory. So in automotive, we see this as real and true demand. But we have also seen consistently over the last few months that the order level or the order placement level has come down slightly. As mentioned, that's why we believe that the recovery in the car market as when we went into the year, we expected a 12% recovery in the cars to be built. We expect this now below 10%, probably maybe around 8%, maybe even 7%, as low as 7%. The recovery in cars built year over year between 2020 2021. Okay. Thank you. If you haven't had this range in the supply chain, I mean, what could have been kind of an indication of revenue if you would have fulfilled every order you have? Can you gauge us here a bit? Up to now, we can say we had only minor delays in the supply chain to our customers, meaning we had still good delivery service to our customers, maybe 2, 3 days delay to their expectations overall. We did not have customer orders, which were completely unsatisfied to this level. In the second half of the year, we also expect further delays, and we also expect that we can satisfy the customer demands overall. Usually, our we had seen that some competitors, they were not able to deliver on time or within a certain time period of the demand when it was raised. And due to that, we had some tactical wins over competitors. Second half of the year will be certainly interesting to see the development. Will some of these so called new customers remain with us, especially in the Construction division? Or will they fall back on their regular sources as they used in the years before? That's still an unknown to us and that's still also an unknown we have put and built into the guidance for the full year 2021. All right. Thank you. And maybe a last question is on the HDD component part, which was growing, I guess, sort of stuff? Is the median term outlook unchanged on that one? Yes. That's a particular that's probably a hard question you asked us here. We have been truly surprised that year over year, we see the TAM development, the total annual drive build is stable. This is the first time probably in the last 5 years where we have not seen a decline. I would assume we will see a stable year 2021, maybe even a stable 2022, but sooner or later, the annual build drive demand will further being reduced because the HDD drives, they are enhanced year by year with more capacity. So hence, less drives are being built and used. But overall, and this is what we see with the sales development in HDD that it returned back to a slight organic growth again because the value content increased in those hard disk drives. And that's something we have to particularly monitor in the year 2022, 2023. We believe that maybe we could have a stable, maybe slightly increased sales trend in HDD due to the change of value in those hard disk drives. But once again, early development, early signs of this development, not yet ready to confirm that trend. All right. Thank you very much. Gentlemen, so far, there are no more questions from the phone. Then we continue with questions from the chat. The first question comes from Thorsten Souther from Kepler Cheuvreux. Considering the strong first half year performance, do you think there is a risk that SFS will see top line decline in financial year 2020? Thank you, Thorsten, for your question here. Yes, when we look out into the year 2022, we still expect that we perform according to our midterm guidance. So that meeting the 3% to 6% organic growth. I think when we take a look into the different end markets, which we have, we certainly see a good pipeline of new projects, which should support this assumption for the year 2022. On the construction side, certainly, some challenges since we don't know where the construction market will continue to go. At this point in time, we expect as long as the national banks remain expensive that there will be enough money available for consumers, enough credits available for consumers to further invest into the environment in where they spend time. And since this is not traveling, it's probably home improvements and new homes. So we're also fairly confident that on the construction side, we'll see a stable development. That's probably the biggest uncertainty going into 2022. Besides that, once again, we would expect that we perform along the 3% to 6% midterm growth expectation. Then we continue with a question from Martha Bluska from Berenberg. Given the strong results, how do you sustainable do you view EBIT margin level for what areas have driven the strong increase? So we for the bottling systems segment stay with our guided range of 12% to 14% EBIT margin levels that we still are confident that they are feasible over the cycle. Clearly, automotive end market drove utilization of our infrastructure and asset construction, which makes 1 third of the overall contributed heavily in pushing our profitability here. So both were part of that strong increase. But we as mentioned now several times, we're looking with clear focus on the sales levels in construction. Inventories are ramped up at our customers, and we are expecting and we see first signals of sales levels normalizing out here. So both contribute and construction is beginning to flatten out and automotive shows significant volatility due to their supply chain issues. Then we continue with the next question from Thorsten Sauter from Kepler Cheuvreux. What's the mechanics to pass on rising input costs to the market, namely steel costs? What sort of headwinds do you expect for 2H? And is this the reason for the conservative 2H margin guidance? We have several mechanics to pass on price increases in construction. That's more of a short term price agenda that we are having with our key customers and with our mid- and small sized customers. So the mechanic there goes through price increases that we can directly implement. In our long term agreements with larger customers, we have price clauses that allow us to pass on raw material increases. On the other hand, also raw material increases, should they arise, to pass that on to our customers with a 3 to 6 month delay once the bandwidth of plus minus whatever is defined is less. And therefore, we see there a time lag in handing over price increase. And you asked me about the headwinds we are expecting. Our bill of material is suggesting that we're having 12% to 15%, 17% of raw material input depending on the arena we're in. We are expecting headwinds, yes. And it's been mentioned before, depending on the quality of raw material we are buying, we're looking at 2,050 or even more percent of price increases that have been announced starting Q3 and further out into Q4. And yes, it is factored into our guidance. We expect that raw material is playing a more important factor in the second half of the year, namely also because the attention on the supply chain allowing us to deliver on time will increase and will demand additional measures in order to securitize our delivery to the customer. I hope that helps. We continue with the next question from Tobias Vanhout from Stiebel. With regard to price management, could you please provide an estimate on the impact of price increases on top line in first half year and also expected in the second half year? And also highlight the most impacted division? Yes. Good morning, Tobias. Jens speaking. Certainly, a broad question you're asking us here. I will be able to answer it by segment. Roughly, we can say that in the first half of the year, we have increased pricing in fastening systems and in distribution logistics segment to our customers. I would broadly state probably in the range between 3% to 6%. Prices have been increased in the first half of the year. Segment Engineered Components has not seen price increases in the first half of the year because there, the special higher quality raw materials we use there, there we have only seen price increases towards the end of Q2. That's why we see then price increases in engineered components in the second half of the year and probably a more flattish price development in fastening systems and distribution logistics or only minor adjustments for specific products where they will still have price increases. That's overall. And in general, the trend, I said, 3% to 6% in engineered components due to the lower raw material content, the price increase will be probably below that range, will be probably in the range between 1% to 4% depending on the customer, the raw materials and the raw material content overall. Besides that, we have not seen a special EBIT gain on the back of lower valued inventories that we could recognize. I think it's division by division. We have seen it varying here and there between the product lines. But overall, we have not seen a specific major step up. Overall, I think we can conclude that probably around 5% EBIT increase is max due to rental price increases we have seen. Then we continue with a question from Marta Bruske from Berenberg. Can you provide a rough estimate on revenues in the first half of twenty twenty one from the major customer of the Electronics Division? Yes. Overall, we can state that in the Electronics division, we profited from a better H1 development in general because last year, second half of twenty twenty, that the ramp up of the new programs have been delayed due to COVID-nineteen, and some of that demand has been pushed over into the year 2021. That's the reason why we have seen throughout electronics overall an improvement compared to previous year in the top line sales. At this point in time, we believe and we changed our opinion. We first off, we expected for the second half of the year a less driving electronics environment. We changed this opinion here when we analyzed first half year results and looked out further into the second half of the year. COVID-nineteen is still around. Home Office guidelines are still around. We expect that the push for electronics gadgets is continuing in the development is broad throughout all customers we have in the Electronics division. It's not tied to a specific product, program, line or specific customer. Once again, it's a broad development we see in Electronics. Then the next question comes from Manuel Bottinelli from AMG For Horatung. Can you please elaborate a bit more about ramping up the medical platform? What are the expectations going into the second half of the year and outlook into 2020 2022? Yes. Good morning, Manuel or Tinelli. We see that Medical division overall, as you are probably familiar, we acquired Tagramedical in North America. We got access to the MedTech customer groups there strongly. Now we utilize this access in Europe and Southeast Asia, where we have good capabilities for all the larger volume products and components. So first off, second half of twenty twenty one, we expect that the orthopedics end market will start to rebound again. So we would expect that the utilization in medical will also improve and increase on that side of the business. Secondly, we still have some low margin product lines where we are in discussions with customers and potentially phase them out in the second half of the year. That's the assumption at this point in time. In the year 2022, we see that we have good product wins. That's why we all need the building extension in Hala, for instance, in Switzerland, but we also see that we have need for building extension in Malaysia, for instance, where we also have won considerable new medical programs for local customers. In general, we have a good pipeline of new products, which we'll bring to the market. So from that point of view, we would also expect in the medical end market next year growth probably in 2022 of around 6% as a very early indication. Besides that, we are certainly working on a few more projects, which then may be coming in 2022 or maybe 2023 for medical customers into the medical division. We continue with a question from Thorsten Sauter from Kepler Cheuvreux. Can you please guide on CapEx in the second half year and full year 2022? Why have investments into intangible assets increased? And what sustainable level of intangible CapEx from here on? Thanks for the question, Stuart Horst and Arthur. We see 2 trends now. We said the CapEx in first half year has been a bit deferred, down as we go into the larger infrastructure projects like the Hole 6 project or the build out of the platform in haul out. We are seeing CapEx for the full year 2021 around 7% as these projects accelerate. What you see in intangibles is our capitalization of our ERP project S4HANA, where we do of the 20 years of having S and PR3 under commissioned, we are doing that switchover. Looking also at the broadening of the ERP to areas where we have seen on other ERP systems and not on our core system. Now this will continue certainly for the next year, expect it to be in the same range at the same speed roughly. And we are going into rollouts during 2022, starting 2022. And then this trend will be capped and will not go into 2023, certainly not as pronounced as now. Then we have a final question in the chat from Thorsten Faute. Unlike last year, the financial result in the first half of the year was positive, yet there is a growth there. How should we plan for the full year for these lines? Not sure whether I fully understood the question. The net cash position when we compare to first half year last year, increased by €191,000,000 And we repaid 3rd party debt. We have 3rd party debt out there in connection with financing structure and balance sheet hedging, which is more on the technical side. But we are not expecting to raise that significantly nor to fully cancel that out. What I said, I'm not sure whether I understand your question correctly. If not fully answered, please feel free to reach out to us after the call and we'll discuss. Since there are no more questions at this point in time in the Sorry to interrupt, sir. We have some questions on the phone. Okay. We come back to the questions on the phone, yes? Sorry. Okay. Thank you very much, sir. The next question is from Bernd Pomrehn from Vontobel. Please go ahead. Good morning, gentlemen. You mentioned some market share gains. Is it fair to say that customers in automotive are more loyal than in construction? And what can you do to more effectively bind customers to SFS? That would be my main question. And then the second question just quickly, can you provide any tax rate guidance for the full year? Thank you. Okay. So I will answer the first question and then Volk will answer the question on the tax. Yes, absolutely. On the automotive side, customers have to be more loyal because the components and products are specified in and approved usually with the Tier 1s and Tier OEMs. So customers are usually not that quick and flexible in switching resources. But quite often, there are maybe 2 or 3 sources for specific product or program, which is specified in, and then the customer can switch the allocation from one source to the other source, usually within a certain band. And this is what we have seen also in this rebound that we had customers which gave us higher allocation because the other source was not able to ramp up in time or not able to provide the right quality. That's why we had also tactical gains in the Automotive division to some degree. But certainly, in the Construction division, roughly half of the growth we have seen in the first half of the year came with customers, which had no sales with us or no dealings with us over the last 12 to 24 months. So their customer loyalty is probably not as high because the customer can switch more easily since a large number of those products are not specifically specified from which source it needs to come from. So that's why those construction customers are a little bit more flexible. To the question on the tax rate guidance, we are stating shyly over 19% for half year, which is driven by considerable FX gains on equity loans, which inflates the taxation. We expect this figure to remain roughly stable, tendency to go slightly down towards year end, so staying below 19%. Bear in mind that we have there a balance sheet effect in it, which in place it when you compare it to the 16% you have in mind out of our last year's full results. Excellent. Thank you so much. The next question is a follow-up question from Mr. Alessandro Foletti from Octavian. Please go ahead. Yes. Good morning. Can you hear me? Yes. Okay, great. I had another question on the construction market in reality. Your comments regarding the potential normalization of growth in second half year and so on are more related to the distribution and logistics part or both the construction business also within Fastening Systems? The comment was more to construction industry as we see that the capacities in the construction industry are not significantly expanded. And as we see that we had distinct higher demand during first half year, which now comes slightly back, we take it as a signal that the restocking effect and the moving up of orders is fading out and real underlying demand is shown. That was more targeted towards construction end markets. We see signals of overheating. We see larger construction sites being stopped because of prices or availability of other raw materials not being granted or stable, budget constraints start to kick in. So we are expecting that this fading out of the rebound will bring us to more normal levels for the second half of the year. All right. But that would apply to both distribution and logistics as well as Fastening Systems? Less to distribution and logistics, more to construction as distribution and logistics is also nicely exposed to the industrial and other end markets and not predominantly construction. Thank you. Gentlemen, so far, there are no more questions. Okay. Since there seem to be no more questions in the chat, so by the call, we thank you all for your interest. Wish you a good summer and talk to you soon again. Bye bye. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.