The 2023 financial year was marked by the nearly complete loss of the high-margin COVID business and the reduction of high security stocks among customers from nearly all sectors. These two one-off negative effects weighed on revenue development and led to under-utilization of the recently expanded production capacities and to an unfavorable development in the product mix. However, thanks to the intact megatrends and the company’s strong market position, Datwyler was able at the same time to gain a large number of promising new projects with new and existing customers.
Review
Maintained revenue despite significantly negative currency effect
Despite the destocking among customers, Datwyler was able to maintain revenue at the prior year’s level at CHF 1’151.5 million (previous year: CHF 1’150.6 million). The two companies acquired in the previous year, QSR and Xinhui, were taken into account for a twelve-month period for the first time. This led to a positive acquisition effect of CHF 55.0 million or 4.8%. The strong Swiss franc caused substantial negative currency effects of CHF 50.4 million or -4.4%, resulting in a slight organic decrease in revenue of 0.3%.
Emerging from the low point: margin to recover in the second half of the year
At the level of EBIT, the insufficient capacity utilization due to destocking among customers, the one-off restructuring costs and the temporarily higher energy costs led to a decline to CHF 120.4 million (previous year: CHF 149.2 million). The EBIT margin temporarily declined to an unsatisfactory 10.5% (previous year: 13.0%). Despite negative seasonal effects and restructuring costs, the EBIT margin recovered in the second half of the year, and at 10.9%, exceeded the figure from the first six months (10.0%). In the process of optimizing its cost structures, Datwyler took care to maintain its capacities and competencies for processing new customer projects to ensure medium-term growth potential was not put at risk. Due to the lower EBIT and the significantly higher financial expenses, the net result declined to CHF 66.8 million (previous year: CHF 104.8 million). The net result per share came to CHF 3.93 (previous year: CHF 6.16). The strong Swiss franc also had a significant negative impact on the profit figures in the reporting year.
Due to one-time negative effects, profitability in the reporting year declined to an unsatisfactory level. However, by sustainably optimizing our cost structure, we are convinced that we have emerged from the low point. Accounting for the opportunities and risks, we expect further improvement for 2024. As soon as the environment normalizes, we will benefit from economies of scale thanks to the advanced investments. We are strongly positioned, with many promising new projects, to build over the medium term on the profitable growth of the past. We have acquired several new customers which have the potential to develop into long term major customers.
Dirk Lambrecht
CEO
Stable dividend
The cash flow statement normalized in 2023 compared to the previous year, which was affected by acquisitions. Cash from operating activities amounted to CHF 194.9 million (previous year: CHF 118.6 million). Through advanced investments, we were able to reduce our investment activity significantly. Accordingly, free cash flow in 2023 improved to a strong CHF 136.7 million. This allows us to further strengthen the balance sheet and still propose a stable dividend. The Board of Directors proposes to the Annual General Meeting a cash dividend of CHF 3.20 per bearer share and CHF 0.64 per registered share.
Strategic topics
Healthcare Solutions with temporary decline in revenue and margins
In 2023, the Healthcare Solutions business area was confronted with the almost complete loss of the COVID business. As a result, reported revenue fell in comparison with the very strong previous year to CHF 469.0 million (previous year: CHF 520.3 million), which corresponds to an organic decline of 5.2% due to the substantial nega-tive currency effect. The loss of the high-margin COVID components led to under-utilization of our recently ex-panded plants and a temporary unfavorable development of the product mix. As a result, EBIT fell to CHF 74.4 million (previous year: CHF 106.3 million) and the EBIT margin declined to 15.9% (previous year: 20.4%). Nevertheless, thanks to the measures implemented, Datwyler was able to improve the EBIT margin to 16.1% in the second half of the year despite negative seasonal effects. To assess the development of the Healthcare business, a comparison with the 2023 reporting should be drawn with 2019, the last year prior to the pandemic. With the same exchange rates and adjusted for the acquisition of Xinhui and the low COVID revenue in 2023, organic revenue growth amounts to 37.6%, corresponding to strong average annual growth of the regular business of 8.3%.
Industrial Solutions with operating progress
The Industrial Solutions business area increased its revenue by 8.2% to CHF 688.2 million (previous year: CHF 636.1 million) in 2023. QSR, acquired in 2022, was included for a twelve-month period for the first time. Adjusted for acquisition effects and considerable negative currency effects, organic growth amounted to 3.6%. In absolute terms, EBIT increased to CHF 46.0 million (previous year: CHF 42.9 million). This corresponds to an unchanged EBIT margin of 6.7%. For the year overall, operational improvements and positive effects from the restructuring measures were more than offset by shifts in the product mix and higher one-off energy costs, especially in the Swiss plant. However, in the second half of the year and despite negative seasonal effects, the positive effects led to an improvement in the EBIT margin to 7.5%, which clearly exceeds the figure of the first six months (5.9%).
Further development of sustainability in difficult conditions
Datwyler has a comprehensive sustainability strategy with twelve focus topics structured in line with the globally established ESG concept (Environmental, Social, and Governance). Each topic bundles activities and projects, and contains clear responsibilities with measurable objectives for effective management. This way, Datwyler takes account not only of its impacts on the environment and society, but also the effects of ecological, social, and regulatory developments on the company. To the benefit of its stakeholders, the company has driven forward its sustainability activities, despite the difficult environment. This is evident, among other things, in the EcoVadis gold standard, which places Datwyler among the top 5% of the more than 100’000 companies analyzed. The positive ratings from regularly conducted employee and customer surveys also motivate Datwyler.
Considering currency-adjusted revenue, Datwyler further reduced the consumption of heating fuels, electricity as well as waste volume per revenue unit again in the year under review. The share of electricity from renewable sources has increased further to 38.3%. With a new human rights guideline and updated code of conduct, the company is raising awareness among employees, suppliers, and customers of possible human rights risks in its own operations and along the value chain. In addition, selected sustainability information is now subject to a limited assurance by the auditors.
Outlook
Changes in the Executive Management
As already communicated in October 2023, Volker Cwielong will take over as CEO of Datwyler on 1 April 2024. Volker Cwielong has broad entrepreneurial leadership experience including successful market launches of new product lines, acquisitions and reorganizations. Most recently, he was responsible for the Purem division of the German automotive supplier Eberspächer, which has a global presence. After seven years at the helm of the company and 18 years on the Group Executive Board, the current CEO Dirk Lambrecht has decided to step down from his operational functions at the end of March 2024. He will be proposed for election as a member of the Board of Directors at the upcoming Annual General Meeting.
Further, the Datwyler Board of Directors has appointed Judith van Walsum as new CFO and Head of the Group function Finance & Shared Services. She succeeds Walter Scherz, who has decided to pursue a new professional challenge outside Datwyler. Judith van Walsum has held various global management positions at Roche Group since 2004, most recently as CFO and Head of IT at Roche Diabetes Care with revenues of more than CHF 1.4 billion. She has also been a member of the Datwyler Board of Directors since the 2022 Annual General Meeting and so is already familiar with the company. She will not stand for re-election to the Board at the forthcoming Annual General Meeting on 14 March 2024.
In Judith van Walsum we are gaining a proven manager with extensive financial and strategic expertise as our new CFO. Her career path will enable her to strengthen the pharma and healthcare expertise in Datwyler’s Executive Management and she will be an asset to that body.
CEO
Judith van Walsum will take over as CFO effective 1 June 2024. Until then Walter Scherz will remain CFO and ensure a smooth handover. Walter Scherz joined Datwyler in 2012 and held various positions, finally as CFO since 2020.
I would like to thank Walter Scherz warmly for the fruitful and agreeable working relationship and for the commitment and dedication he has shown to Datwyler. I very much regret his decision and wish him all the best for his future career.
Dirk Lambrecht
Cautiously optimistic outlook despite challenging environment
In the immediate future, the focus will be on achieving profitable organic growth by scaling the business model and production capacities and on strengthening the balance sheet. In the process, Datwyler intends to increase the penetration of its existing customers and markets, expand the addressable markets it can serve with high-quality products, expand into new countries and regions with the Healthcare and Connectors business units and increase the share of revenue generated by new products from the innovation pipeline. The large number of promising new projects with existing and new customers shows that the growth trends are intact in the markets with high entry barriers that Datwyler serves. For that reason, Datwyler confirms the medium-term objectives communicated to date.
Despite a challenging environment, Datwyler remains cautiously optimistic for the year 2024 on the whole. On the one hand, sustainably optimized cost structures, lower energy costs, the continuous recovery of the Connectors business unit, and the decline in the price of raw materials should support the margin in 2024. On the other hand, geopolitical uncertainties, the strengthening of the Swiss franc, ongoing destocking at customers, recessive tendencies, and the modest forecasts for the global Mobility and General Industry markets call for caution. Accounting for the opportunities and risks, Datwyler expects organic revenue growth in the low single-digit percentage range and an improvement in the EBIT margin.
