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Half-Year Report 2023
Half-Year Report 2023

Solid organic revenue growth – loss of Covid business pressures margins

The almost complete loss of the high-margin Covid business and destocking by customers led to underutilization at the recently expanded plants. However, the growth trends in the markets are intact, as is shown by the large number of promising new projects with existing and new customers in all the markets served.

All key figures
602.7million
Net revenue
10.0%
EBIT margin
60.5million
Operating result (EBIT)
915.8million
Average capital employed
15.0%
ROCE
29.2million
Capital expenditures
8'234
Full-time equivalents
All key figures

Review

Negative external one-time effects – large number of new projects

After a favorable start to the year, Datwyler was confronted with a weakening economy and negative external one-time effects in the first half of 2023. The almost complete loss of the Covid business and our customers’ reduction of their high safety stocks in nearly all sectors slowed our revenue growth and led to under-utilization at our recently expanded plants.

In addition, the higher energy costs in 2023 and the temporary unfavorable development of the product mix had a negative impact on the margin. Thanks to our strong market positions and our recognized core competencies, we succeeded in winning a large number of promising new projects with existing and new customers in all the markets we serve.

Organic revenue growth thanks to sustained price increases

Half-Year Report 2023
5.6%
Organic revenue growth

Overall, Datwyler increased its revenue year-on-year in the first half of 2023 by 11.3% to CHF 602.7 million (previous year: CHF 541.6 million). The two companies acquired in the previous year, QSR and Xinhui, were taken into account for a six-month period for the first time. This resulted in a positive acquisition effect of CHF 55.0 million or 10.2%. The strong Swiss franc caused substantial negative currency effects of CHF 24.5 million or -4.5%. As a result, organic revenue growth stood at solid 5.6%, including a sustained positive price effect of 4.7%.

At the level of EBIT, the higher employee and energy costs and the insufficient capacity utilization led to a decline to CHF 60.5 million (previous year: CHF 72.5 million). The EBIT margin fell to an unsatisfactory 10.0% (previous year: 13.4%), although the figures for May and June were above the average for the first few months. Due to the lower EBIT and the significantly higher financial expenses, the net result declined to CHF 32.1 million (previous year: CHF 57.4 million). The net result per share came to CHF 1.89 (previous year: CHF 3.38). The strong Swiss franc also had a significant negative impact on the profit figures.

Where appropriate, we took proactive measures to combat the margin pressure in the form of changes to cost structures and further price increases on the customer side. At the same time, however, we maintained and selectively expanded our capacities and competencies for acquiring and implementing new customer projects and further developing our growth and innovation projects. Examples include the expansion of the healthcare product portfolio, new materials and products for electric vehicles, electroactive polymers and soft dry electrodes.

Our sustainability measures are a further competitive advantage which we are continuously advancing. In the reporting period, the internationally recognized rating agency EcoVadis awarded us a Gold medal for our sustainability performance for the first time. This places Datwyler in the top 5% of more than 100'000 companies from 175 countries that are rated by EcoVadis each year. Furthermore, our ICT security management system is now certified to ISO/IEC 27001:2013.

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Half-Year Report 2023

Healthcare Solutions

Healthcare Solutions suffers overproportionally from the loss of the Covid business

The Healthcare Solutions business area was able to compensate the almost total loss of the Covid business through growth in its regular business (4.7%) and by implementing price increases (5.9%). It achieved this result despite the fact that healthcare customers also significantly reduced their safety stocks. Although reported revenue fell in comparison with the very strong first half of 2022 to CHF 253.8 million (previous year: CHF 265.7 million), when adjusted for currency and acquisition effects, this equates to slight organic growth of 0.6%. The loss of the high-margin Covid components led to underutilization of our recently expanded plants and a temporary unfavorable development of the product mix. As a result, EBIT declined to CHF 39.8 million (previous year: CHF 58.0 million) and the EBIT margin to 15.7% (previous year: 21.8%).

However, the pandemic has also had a lasting positive effect on our business. Supply chain pressure and our pioneering investments have secured us access to all important pharmaceutical companies. We are currently working on a large number of new projects with considerable future revenue potential.

Thanks to its newly launched UltraShield™ film coating, Datwyler is also the only provider with two coating technologies and can therefore offer its customers the optimal solution according to their needs. Following its acquisition in 2022, the integration of Xinhui is going to plan and has strengthened our position in the rapidly growing healthcare market in China. Overall, with our advanced investments, we are ideally positioned to take advantage of the market growth forecast for the medium term. We will benefit from scaling effects as soon as the environment normalizes.

Half-Year Report 2023

Industrial Solutions

Significant increase in EBIT at Industrial Solutions

Thanks to the first-time inclusion of QSR for six months, the Industrial Solutions business area increased its revenue by 25.9% to CHF 351.8 million (previous year: CHF 279.5 million). Adjusted for acquisitions and currency effects, organic growth amounted to 10.1%. The positive effect of the price increases implemented was 3.8%.

At CHF 20.7 million, absolute EBIT was significantly higher than in the previous year (CHF 14.5 million). As a result, the EBIT margin improved accordingly to 5.9% (previous year: 5.2%). Despite the economic recovery in China being slower than expected, the Mobility business unit was able to increase its revenue substantially.

Half-Year Report 2023
New materials from Datwyler improve thermal management of batteries in electric vehicles.

By strengthening our presence in China with local development engineers, we were able to acquire leading electric vehicle manufacturers as new customers. Our product pipeline is developing encouragingly and the share of electric vehicle projects is increasing continuously. To ensure optimal production of the future Mobility product portfolio, Datwyler is working to optimize and consolidate the plants.

In the current year, the integration of QSR is going to plan so far. The optimization measures implemented are having an impact and enabling continuous improvement of the margin. The cross-selling projects between the new Connectors business unit and the Mobility business unit are developing encouragingly. The General Industry business unit also acquired promising new projects with existing and new customers in the first half of 2023. Furthermore, our longstanding customer Stihl named us Supplier of the Year for 2022. Due to the inflationary environment and destocking by customers, current General Industry revenues are down year-on-year, especially in Europe.

The Food & Beverage business unit once again grew much faster than the market average in the first six months of the year. However, changes in the product mix and contract-based increases in electricity costs at the Swiss plant limited the margin potential in 2023. Part of the additional costs was compensated through continuous optimization of the plants and processes.

Outlook

Challenging 2023

The negative external one-time effects mentioned at the start of this letter will also impact the second half of 2023. Personnel cost inflation, for example, remains high. The risk of a further weakening of the economy and currency trends continue to call for caution. Despite the positive impact of the price increases and optimization measures implemented, Datwyler’s short-term revenue and margin potential is therefore limited in the seasonally weaker second half of the year. For the full year 2023, we are aiming for revenue of around CHF 1'175 million and an EBIT margin of around 11%.

≈ 11%
EBIT margin

2023 target

Half-Year Report 2023

Intact growth trends and strong strategic positions

We remain convinced of Datwyler’s profitable growth potential over the medium term and therefore confirm our medium-term objectives. The large number of promising new projects with existing and new customers in all the markets we serve shows that growth trends are intact in our markets. With a clear focus on system-critical elastomer components, we make a key contribution to the functionality and quality of our customers’ systems while at the same time accounting for a very low proportion of these systems’ overall costs. Moreover, we also enjoy strong strategic positions in attractive markets with long-term growth trends and high entry barriers.

Datwyler generates more than two-thirds of its revenue as a principal strategic supplier of global market and innovation leaders in low cyclical markets and technologies that are enjoying long-term growth, such as healthcare, food & beverage, automation and electrification. The Datwyler business model enables the creation of strong synergies and, consequently, competitive advantages through interdisciplinary research and development, materials expertise and solution design, through uniform production and IT systems, and through central procurement of similar raw materials and production equipment.

Due to the advanced expansion of our production capacities, particularly in the areas of Healthcare Solutions and Food & Beverage, we have put ourselves in a very good position to seize future growth opportunities once destocking by our customers is completed  and the environment has normalized. This growth will be achievable with hardly any further investment. In addition, the negative effect of electricity costs at the Swiss plant will disappear again from 2024, which will have a significant positive impact on margins in the Food & Beverage business unit. The companies QSR and Xinhui, which we acquired in 2022, open up additional potential in the new Connectors product segment and the attractive Chinese healthcare market.

We would like to thank our employees at all sites and in all functions for their great commitment to Datwyler’s prosperity. It is they who generate added value for our customers with their skills and experience and it is they who take our company forwards.

We also thank our customers for the trust they place in us, which they express with the many new and challenging orders they place. And we thank you, our shareholders, for the loyalty you show towards our business.

On behalf of the Board of Directors and the Executive Management

Signature Dr. Paul Hälg, Chairman
Dr. Paul Hälg, Chairman
Signature Dirk Lambrecht, CEO
Dirk Lambrecht, CEO

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Dätwyler Holding Inc.
Gotthardstrasse 31, 6460 Altdorf, Switzerland
T +41 41 875 11 00, F +41 41 875 12 28
info@datwyler.com, www.datwyler.com

Disclaimer

The Half-Year Report contains forward-looking statements. These statements reflect the Group's current assessment of market conditions, economic developments and future events. However, these forward-looking statements are subject to economic, regulatory and political risks, uncertainties, assumptions and other factors over which Datwyler has no control. Unforeseen events could therefore cause actual developments and report to differ materially from those anticipated and from the information published in this report. To that extent, all forward-looking statements contained in this report are qualified in their entirety and Datwyler cannot guarantee that they will prove to be correct. Datwyler is under no obligation, and assumes no liability, to update any such forward-looking statements. This document is neither an offer nor a solicitation to buy or sell Datwyler securities.

This Half-Year Report is available in English and German. The German version is binding.

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