Phoenix Mecano: solid business performance and higher margins

The Group significantly improved its earnings in the first half of 2023, while sales held steady. There were further increases in operating cash flow and profitability.

Kloten/Stein am Rhein, 17 August 2023. Even after the disposal of Phoenix Mecano Digital Elektronik and Phoenix Mecano Digital Tunisie and despite a slowdown in industrial activity, Phoenix Mecano's consolidated gross sales in the first half of 2023 remained on a par with the previous year at EUR 409.0 million (2022: EUR 410.7 million). Organic, local-currency sales were up 4.6%. All major market regions contributed to the growth, with the main European and Asian markets growing organically faster than their American counterparts.

Net sales totalled EUR 404.8 million (previous year: EUR 406.3 million). Incoming orders fell by 8.5% to EUR 400.4 million. In organic, local-currency terms, they were only slightly negative, down 0.5%. The book-to-bill ratio was 97.9%, down from 103% the previous year (excluding Phoenix Mecano Digital Elektronik and Phoenix Mecano Digital Tunisie).

The operating cash flow (EBITDA) rose by 10.6% from EUR 37.2 million to EUR 41.2 million and the operating result (EBIT) by 21.7% from EUR 24.8 million to EUR 30.2 million.

The result of the period increased by 19.4% to EUR 20.5 million (previous year: EUR 17.2 million).

Following the final results of the investigation and in agreement with SIX Exchange Regulation Ltd (SER), the effects of the irregularities at a US subsidiary on the aforementioned figures for H1 2022 were corrected by a restatement. Consequently, the prior-year comparison basis increased by EUR 4.7 million for the H1 2022 operating result and by EUR 4.1 million for the result of the period. The growth in operating result and result of the period shows the comparison of the true operating performance in both years.

Thanks to the strong free cash flow generation and the divestment, the Group's net indebtedness fell from EUR 109.6 million as at 30 June 2022 to EUR 55.8 million.

Division performance

The DewertOkin Technology Group (DOT Group) division saw its gross sales decline by 4.9% to EUR 163.6 million. In organic, local-currency terms, the decrease was 1.8%. By contrast, its operating result rose from EUR 0.3 million to EUR 3.8 million and its operating margin from 0.2% to 2.3%.

Inventories in the global supply chains of the DOT Group's key accounts were significantly reduced and incoming orders appear to have bottomed out. However, the hoped-for upturn in end markets failed to materialise. In the US, the main sales market for comfort furniture, activity improved slightly in the second quarter, but demand in Europe fell short of expectations. While the market for nursing bed drives in Europe experienced a significant downturn in Q2, high levels of investment in modernising and expanding hospital infrastructure helped to generate strong growth in Asia.

With a view to streamlining value chains, existing capacities for the final assembly of drive systems are gradually being relocated from the US to Asia and concentrated at the new industrial park in Jiaxing.

The Industrial Components division saw organic, local-currency growth of 8.4%. Due to the divestment of Phoenix Mecano Digital Elektronik and Phoenix Mecano Digital Tunisie, the bottom line was down 4.0% to EUR 120.8 million. The divestment meant that the operating result declined 3.0% year-on-year to EUR 8.8 million, although the operating margin climbed slightly from 7.2% to 7.3%.

The Automation Modules business area achieved sustained success with strategically important customers in the supply of custom solutions for ergonomically adjustable workbenches, a business involving extensive customer advice and support. Amid a general slowdown in traditional mechanical engineering, demand in the Measuring Technology business area remained high in all customer segments. The trends towards electrification and renewable energy ensured that this part of the division continued to thrive. These megatrends also kept the number of project enquiries in the Electrotechnical Components business area at a high level, while orders on hand decreased further, dropping back almost to previously normal levels.

Sales in the Enclosure Systems division were up 10.5% from EUR 112.8 million to EUR 124.6 million. In organic, local-currency terms, the increase was 10.7%. The operating result rose from EUR 17.4 million to EUR 19.9 million and the operating margin from 15.4% to 16.0%.

As expected, some of the division's major customers continued to reduce their inventories. By contrast, sales of robust and reliable industrial PCs developed remarkably positively. These high-tech products can be combined modularly with industrial controls and robotics and adapted to specific customer needs. The number of promising applications for this product family is growing all the time, driven by the megatrends of industrial automation and digitalisation of processes.

Outlook

The relevant economic indicators point to a slowdown in some regions and industrial segments.

Orders on hand above the long-term average and a business model geared to structural growth provide a sound basis for the coming months, even in this challenging economic environment. Based on these factors, combined with the crisis-resistant cash flow generation of the Group's industrial activities and the ongoing stabilisation of the DewertOkin Technology Group, Phoenix Mecano believes it is well prepared for what will undoubtedly be a challenging second half of the year.

As a leading player in global niche markets, Phoenix Mecano continues to enjoy attractive growth prospects in the wake of industrial megatrends. The Group's Board of Directors and management therefore reaffirm the targets of increasing sales from continuing operations and a double-digit percentage improvement in operating result (EBIT).

A detailed semi-annual report will be available as a PDF download on our website from 17 August 2023.