SFS Group AG (SFSN) Earnings Call Transcript

Good morning, everyone. And thank you for joining us today for the presentation of the SFS Group half year results 2026. Volker Dostmann and I are pleased to present the SFS Group results today. Before we start, please note that this conference is being recorded automatically. The presentations as well as the half year report itself are available online at sfs.com in the download section. The first 6 months of this year were shaped by ongoing upheavals in the market environment and disrupted supply chains. Despite these challenges, SFS delivered strong progress. Our local-for-local approach, diversified positioning across end markets and regions and our focus on mission-critical applications once again proved to be strength. At the same time, we continue to implement the program to streamline our global production and distribution network. This program is designed to sharpen our focus on core activities, align capacities with market demand and strengthen profitability over the midterm. Let me briefly guide you to today's agenda. In the next 10 minutes, Volker and I will walk you through the highlights of the first half year 2026. I will start with a short reminder of how SFS is positioned and how we create value for our customers, followed by taking you through the key takeaways of the first half 2026. Volker will then present the key financial figures, the development of the segments and our guidance for 2026. After that, we'll be happy to take your questions. I will start with the positioning of SFS. SFS is by your side, 24 hours a day, 7 days a week, often without being noticed. Our products provide reliable support in everyday life. They are seamlessly integrated into customers' applications, but they also fulfill mission-critical functions. When the people use a smartphone in the morning, make coffee, drive to work, board a plan, work with electronic devices, enter modern buildings or benefit from medical treatment, SFS solutions are often part of these applications. Our precision components, fastening solutions and tools contribute to reliability, safety and performance in a wide range of end markets. What all these products and services have in common is our value proposition: inventing success together. In many cases, the direct cost of our products represents only a small share of the total cost of our customers' products or processes. The real value lies in improving the overall application. Through value engineering, we help customers improve performance, reduce complexity and create measurable added value. We do this as value creators in 3 segments. Engineered Components focuses on highly precise customer-specific components and assemblies. Fastening Systems develops markets, application-specific fastening solutions for the construction industry. Distribution & Logistics provides tools, fasteners and C-part management solutions for industrial manufacturing customers. Many of the products developed by SFS are invisible to the end user, but they are essential for the safety, functionality and performance of the final application like in here in this aerospace examples. Examples include cabin assemblies, assembled solutions, injection molding applications and aerospace fasteners. These products require a high precision, deep application know-how and close customer collaboration from the development phase through to serial product. In addition to organic growth, we continue to pursue targeted acquisitions that strengthen our technology portfolio and market access. A recent example is Heartland Precision fasteners in the United States. Heartland is a U.S.-based manufacturer of high-grade fasteners for aircraft structures and propulsion systems. The company generated sales of around USD 30 million in 2025, and employs around 70 employees. This acquisition expands our aerospace portfolio and activities, gives us access to key U.S. customers, including Boeing, and support the buildup of global manufacturing platform for the aerospace market. The acquisition was signed after the balance sheet date on July 9, with closing expected by the end of September 2026. In the Fastening Systems segment, SFS combines products, tools and digital engineering solutions into integrated fastening systems. Our approach is not limited to supplying the fastener itself, we aim to optimize the entire fastening process. This includes the fastening elements, the installation tool and calculation software that supports the correct application of the solution. By combining these elements, we improve reliability, productivity and efficiency for our customers in the construction industry. Another example of the targeted acquisition is Harald Zahn GmbH. Harald Zahn is a leading supplier of fastening systems for flat roof, based in Germany and serving customers in Germany and Austria. The company generated sales of around EUR 8 million in 2025, and employs around 45 employees. This acquisition strengthens our market access in Germany and Austria, expands our range of flat roof services and opens additional international growth potential for existing products and solutions. In the Distribution & Logistics segment, we provide the ecosystem for industrial production. Our customers are industrial manufacturers, especially metalworking, and they are mainly located in Europe. The segment offers a greater portfolio of high-quality cutting and hand tools, workshop equipment and personal protection equipment. At the same time, we offer one-stop shopping solutions and process optimization for industrial manufacturing. In other words, we supply everything around the industrial workplace. This combination of product range, process know-how and service creates clear value for our customers. Also in Distribution & Logistics, acquisitions play an important role in strengthening our platform. The acquisitions of Gödde, Oltrogge, Perschmann will further internationalize the trading business, extend direct market access in Europe and create synergies. Together, these partner companies represent an increase of sales of around EUR 130 million for SFS. In addition, the acquisition of Jellypipe AG, now renamed Hoffmann Additive Manufacturing, expands our technology offering in industrial 3D printing and strengthens our position in the trading business. Looking ahead, we continue to focus on our main strengths and opportunities. Our priorities remain disciplined strategy execution, benefiting from relevant megatrends, strengthening our local for local footprint, focusing on technology and maintaining solid financing. This priority support our long-term growth and profitability ambitions. I'll continue with the key takeaways of the first half year 2026. The first half year 2026 was faced by ongoing upheavals and disrupted supply chains. Our local-for-local approach helped mitigate the effects of supply bottlenecks on our business areas, and then again demonstrated the resilience of our strategy and business model. SFS has generated sales of CHF 1.559 billion, corresponding to growth of 1.3% compared to the first half of 2025. Currency effects slowed sales by minus 4.2%. Organically, we achieved strong growth of 4%. Mixed effects and measures from the streamlining of the global production and distribution network had a positive impact on profitability. File implementation continues to generate nonrecurring effects. Adjusted operating profit or adjusted EBIT came to CHF 206 million, corresponding to an adjusted EBIT margin of 13.3%. Operating profit EBIT including nonrecurring effects came to CHF 211.2 million and an EBIT margin of 13.6%. SFS also continues to complement organic growth through strategic acquisitions and to strengthen its long-term positioning. The streamlining program is already having visible positive impact on profitability. The program strengthens our focus on core activities, our trust production capacities to market demand, improves the efficient use of our resources and reduces complexity within the global site network. These measures support the achievement of our defined long-term growth and profitability targets. At the same time, the SFS strategy remains unchanged, especially our local-for-local approach. Overall, the program is expected to reduce sales by around CHF 110 million and generate total one-off cost of approximately CHF 75 million. In return, we expect a positive EBIT margin effect of around 0.8 percentage points by the end of 2027. Approximately, 650 employees are affected by company sales, site closures and transfers across Austria, the Czech Republic, Germany, Malaysia, Singapore, Switzerland, Turkey and the United States. The program is expected to be completed by the end of 2027. Now handing over to Volker for the presentation of the key financials.

Thank you very much, Jens, and good morning, warm welcome from my side to everybody. As we go into the financials. As said, overall, the group achieved sales of CHF 1.59 billion (sic) [ CHF 1.559 billion ] translates into a reported growth of 1.3%. However, we have been held back by the continued appreciation of the Swiss franc to the tune of CHF 64.8 million during the first half year, which represents minus 4.2% as said, which was mainly driven by the depreciation of the euro and the U.S. dollar. We may show a very strong growth of 5.5% in local currency against our guidance of the 3.6 -- the 3% to 6%, we are in the upper end. Organically, we've grown 4%, whilst M&A activities, including the deconsolidation of the sold entities, have added 1.5%. M&A activities included the acquisition of the partner businesses Gödde, Oltrogge, Perschmann; the Harald Zahn in Germany; 3D platform, Jellypipe; and effects from DB Fasteners in the U.S., which was acquired to the latter of last year. As well as the divestments carried out under the program to streamline the production distribution network. This is to be noted. Sales dynamics remain uneven from various angles. We have muted demand in Europe. We see persisting global geopolitical uncertainty. And with that, we do not point out yet a consistent overall trend. However, we've seen an unexpectedly strong Q2, extraordinary pattern in the electronics end market, particularly in the mobile phone business. That changed our delivery schedules towards the end of the year. It is expected that the usual Q4 pickup in mobile phones, we've seen in past years, will not materialize this year to the extent seen in prior years. We'll explain that a bit in more detail. In segment Engineered Components, particularly the electronics end market, saw a pickup. But on the other hand, we've also seen a good development in the industrial end market and here, particularly aerospace, where we have captured possibilities in Europe. The mobile phone cycle did hold this year, significantly longer than in past years and kept going into Q2. Normally, we would have seen a ramp down in February, which would be the pattern. So this year is distinctively different. Additionally, we have seen solid development in higher hard disk drive components, enjoying the robust demand from the data center side. We expect this dynamic to ease out mainly from the mobile phones. We look at the moderated demand for the coming months in that area. In Fastening Systems, we saw impact from challenging market environment. The headwinds were largely offset by a pickup in volumes in the second half of Q2, as said, as well as from pricing effects resulting in the end in an organic growth of 1.2% in that area. Distribution & Logistics shows organic growth of 1.5%, supported by pricing initiatives, first accretive effect of the acquisition of the partners are visible, which have been consolidated as per the respective closing date during the first half year of 2026. With this backdrop, we may report good sales development in volatile environment. The team showed great dedication and loyalty, and we thank all of them for their contribution rate. Looking into geographic end markets, we see that the geographic end markets show a slight pickup in Europe. We also see a continued shift towards Asia, which accounts for 14.4%. Meanwhile, while the Americas remains subdued due to the U.S. dollar effect described. The sales by industry is stable. Industrial manufacturing accounts for 27.5%, slightly above the prior year level. We maintained and even expanded our footprint in this industry despite the pronounced challenges in Central Europe. Automotive is further reduced slightly, while construction is affected by the weak dollar. Operating profitability, we reported cost EBIT of CHF 206 million or 13.3% of sales. EBITDA of CHF 273.7 million or 17.6% of sales for the first half year of '26. These indicators are adjusted for nonrecurring effects from the related -- related to the program to streamline our production and distribution network. The streamlining program we announced with our half year results 2025 are well on track. We see first positive effects. Our personnel expense ratio declined by 1.1 percentage points. Our operating expense ratio improved by 0.4 percentage points, respectively. Earnings per share is at CHF 3.82 per share, which is an increase of CHF 0.96 versus prior year. Earnings per share is mainly driven by the pickup in EBIT, which leads -- with EBIT levels which includes minor effects from the program to streamline the production network. No major impact from financial results as that remains on prior year levels. Tax expense raised nominally at stable tax rate during first half year. Going forward, we are confident to continuously show improvements in the net results. Net working capital saw an increase -- significant increase versus prior year, primarily driven by the acquisitions. And first of all, by receivables. First, the consolidation effect from the partners businesses added to receivables, CHF 39.4 million in total. Secondly, we are seeing a strong growth in electronic business, contributing CHF 25.4 million to the net working capital. Inventories increased as we had to honor outstanding supplier contracts from prior years in Fastening Systems, while also adding inventories from M&A activities. For the remainder of the year, we expect these positions to unwind and starting to normalize. CapEx in the first half of the year stood at 2.3% of sales, clearly below D&A of 4.2%, which is historically low level. This reflects the streamlining of the production and network and successfully increases the utilization of the installed capacity. Our more selective investment decisions, showing effect, however, we expect the ratio to increase again as we remain committed to invest in growth-oriented innovative production facilities. While maintaining disciplined view on capacity utilization, we confirm our midterm CapEx range of 4% to 6% of sales. As a result of the effects described and despite the net working capital additions, our free cash flow amounted to CHF 121 million on prior year level, corresponding to an EBITDA conversion of 43.7%. This confirms our ability to generate cash while continuing to streamline our production and distribution network. Ongoing net working capital management, disciplined CapEx decisions and profitable growth remain the cornerstones of our decision-making. We are well positioned to sustain strong cash generation and reaffirm our target range of 40% to 50% of EBITDA. Having leveraged our equity position for the acquisition in Distribution & Logistics and while pursuing our M&A strategy, we continue to manage our equity ratio actively. At the half year, we report an equity ratio of 58.9% just below prior year's 60.3%. We are working towards the further deleveraging of the balance sheet, while making use of our strong financial position to support innovation and growth. Given the above-mentioned developments, we see a return on invested capital and return on capital employed on comparable levels prior -- to prior years along the profitability. Let me go into the development of the individual segments, starting with Engineered Components. Third-party sales of the first half year amounted to CHF 577.8 million, reflecting strong organic growth, driven by the extraordinary electronics end market, as mentioned earlier. Growth in electronics, together with the successful start of operation in [ Kanagula ], India, led to a nominal increase in FTEs versus prior year despite the ongoing adaptation of the organization. Despite the overall industrial environment, we achieved solid progress in automotive. This was mainly driven by the initiatives to streamline production and distribution network. The medical business remained stable, while the industrial business has benefited from demand in the aerospace end market in Europe. With the acquisition of Heartland Precision Fasteners, which we announced on July 10, we underlie our strategic ambition to expand into aerospace market in North America. The transaction, as said, is expected to be closed in Q3. Fastening Systems. The third-party sales showed some unexpected momentum in Europe during the second quarter and improved, but overall ended at sales of minus 1.1% reported below the prior year. Price mix effects were strong, particularly the U.S. market, while demand in North America remained flat. Acquisitions made a positive contribution of 2.4%, consisting Zahn Germany and DB Fasteners in the U.S., which was an acquisition in the latter of last year. Overall, we saw an organic growth of 1.2% for the segment. Distribution & Logistics shows third-party sales of CHF 687.7 million, and this is up versus prior year, driven by the acquisition of the former partners, Gödde, Oltrogge, Perschmann, but also additive manufacturing. We saw a slight improvement in momentum in the first half year, supported by solid pricing development, although the FX environment remained adverse. The streamlining of the organization shows effect in profitability, whilst favorable pricing situation supported the margin during first half year. The closing of the acquisition of the 3 partners was completed as scheduled during Q1 and Q2, and integration is progressing as planned. The same applies for the acquired 3D business, Jellypipe. These acquisitions strengthen the market position not only in Germany, but also in Poland and Benelux, and gave us a good footprint in Europe, as described. With that, we move on to the 2026 guidance. We confirm and reiterate our guidance for the current year of 3% to 6% of growth, measured in local currencies and including scope effects. We also confirm that the adjusted EBIT margin will remain in the range of 12% to 15%. With that, Mr. Jens and I conclude the performance report. Thank you very much for your attention, and we will now go into the Q&A. Yes, get back to -- sorry for that interruption. With that, I hand over for the Q&A, which is moderated by Benjamin Sieber.

We'll start with the Q&A with Jörn Iffert from UBS.

So we seem to have some technical glitches here. So we ask you, please write your question to investor.relations@sfs.com. Sorry for that. Once again, please write your questions to investor.relations@sfs.com, and then we'll get to your questions. We'll read them out loud here and answer them. So please start writing e-mails, yes. [Technical Difficulty]

Good. We start with a question from Tobias Fahrenholz from ODDO. On the top line, what has roughly been the price impact in the first half year? And what's likely for the second half year? Maybe you could also comment if there has been some one-off prebuying effect somewhere?

Yes, yes. Thank you for the question. First off, let's discuss it segment by segment. It's a very good question. In the segment Engineered Components, we had in the year 2026, virtually no price increases which hit the market. We have some major adjustments in the year '24 and '25 and are now more or less, through those major adjustments over the whole segment, certainly, within certain regions like India, where we have seen heavy impacts due to the crisis in the Middle East, there we have seen 7% to 8% price increases on sales of around USD 50 million to USD 60 million. Also in China, we have seen selective price adjustments here and there with some customers that would also quantify them to maybe around 3% to 4%. Overall, total business volume of around USD 200 million. And in the segment Fastening Systems, we have seen price adjustments. We have seen the growth of 1.2% in the segment. Roughly 2/3 is volume-based and 1/3 is price based. And in the segment Distribution & Logistics, we also have seen some selective price increases probably amounting to around 1% in the segment Distribution & Logistics overall. For the second half of the year, we would expect also some further adjustments similar to what I first have stated and mentioned, mainly in the Fastening Systems, but we are focused on Europe. And in Distribution & Logistics, we'll publish a new catalog and also there, we'll see some selective price increases in D&L. Engineered Components, at this point in time, we do not expect or foresee further price increases. Then you asked about one-offs also on the sales side. We have seen certainly some tactical purchasing ahead, but not amounting to a substantial volume, which needs to be mentioned. In Engineered Components, Fastening Systems and Distribution & Logistics, it's small or minor that we sometimes see a little bit of an increase in a specific month in demand and then lowering off in the second following month. Overall, we plus see a little bit of more bumpy uneven development in general, but not something that's concerning or also not something that's in relation to us selling off specific sites or maybe closing down specific sites. There has been no onetime large effects which are worthwhile to mention at this point. Thank you for your questions.

And we have a follow-up question from Tobias Fahrenholz on the margins. First question on EC. With less seasonality showing up, is it fair to assume a flat margin level in second half versus the first half? And also on the margin side, on the P&L side, looking at the current high margin levels, are these sustainable? And would you need to upgrade your general 8% to 11% EBIT margin target bracket for D&L?

Thank you very much, Tobias, for the follow-up. Starting with EC, we certainly see a different mix. Our customers have been very successful with the launch of their new products. And as I said, the mobile phone business carried into Q2. We expect that the schedule for the next season in Q4 are renewed and will not be as distinct as in prior years. That will also have a bit of an effect in -- on the margin side. And therefore, we expect a more flat development from that side than in the past, but there is also a considerable question on the mix effect and what our customer is then willing to launch in Q4 and how much is our participation. So there, we would now portray a more flattish or not as distinct pickup in second half year for EC from the electronics business. The second part of your question relating Distribution & Logistics, it's visible in the margin of D&L. We had favorable pricing situations where we saw some price increases that Jens described, and we also had a counter effect that we enjoyed, still rather low purchase price on the supply chain, which we benefited from. That's going to ease out slightly for the second half year. We'll work with price increases, as I said, and therefore, expect to counterbalance some of that effect, but we do not see ourselves yet in a position to offer the bandwidth for Distribution & Logistics in the midterm. I hope that helps to answer your questions. Thank you very much, Tobias.

Good. Then we continue with questions from Fabian Piasta from Jefferies. First question related to CapEx. CapEx for full year '26. First half year was roughly CHF 32 million or 2% of sales. Will you expect an acceleration in the second half year?

Thank you very much. Yes, as said, we look at midterm 4% to 6%. We will see investments in the second half year picking up as we are investing into growth opportunities and modernizing our production network. Expect us to be at the lower of the bandwidth in the short term, but midterm, we certainly strive to keep up our professional productivity programs and our physical property, plant and equipment. And therefore, we will strive for the 4% to 6% in the midterm.

I think what we can add here also is that we had kind of a pre-spend on our Asian activities, especially in India and China over the last few years. We see now that the markets are shifting. The opportunities, I mean, in India and China, as you also see, with the growth development in our half year report. And as Volker also mentioned numerous times, in Europe, we've actually been a little bit tighter with capacity management overall and utilizing it better. We don't need to support major growth initiatives at this point in time because our customers also re-adjust their value-added footprint. And therefore, we see this development currently. But certainly, going forward, we have projects to expand activities in China, for instance. We have activities also in Malaysia to expand. In India, we are just filling currently up the Kanagala site, which we have expanded and also would foresee there a further extension near-term in probably the next 1 to 3 years. And then also we're having discussions about maybe a market entry into Vietnam with some also value-added locally on a very low level but also a step forward. So we see the activity shifting, but also as mentioned, we have done pre-investment, and we are, therefore, in good shape and ready to take on more orders and more growth mainly in the Asian region.

And next question from Fabian Piasta. Did the U.S. business include tariffs, persons and could you quantify them?

Yes. Tariffs, we -- very good question. Tariffs, we said that the volume of 30 million to 50 million could be impacted by tariffs. Certainly, there was a much lower extent visible in first half year. And we managed to profit from our local to local. So the local value add, the local sourcing, the domestic supply chains, they helped us -- they sheltered us from this effect to a very large extent. On the other hand, we also had the decision that some of these tariffs were raised in undue manner and courts defined that process to get back parts of the tariffs paid. Just to give you a bit of a sizing that the part that we are trying to regain and partially already got back is at very low 1-digit million number. So overall, yes, but more of an administrative burden than as a financial issue to our overall P&L in the U.S.

And on the top line, we can say the effects we have seen in the previous year in 2025 when the deliberation day afterwards, pricing adjustments have been implemented quickly into the different relationships with our customers. And therefore, this year, we have not seen an impact on the top line due to those tariffs.

And then we have 2 final questions from Fabian around electronics business. Can you share some more details on the mobile phone cycle? And what is the expected implication on the momentum in Engineered Components in the second half? And the second question is what is the share of HDD sales on total EC and HDD specifically for data center application?

A very good question on what's the strategy on handheld devices, mobile devices overall by customers and in general, by our large customer. Overall, we have seen that there is a focus on high-end phones. And there is also, I would say, a reconsideration of how many models will come to the market and when do they come to the market. That's kind of a tactical then decision. And maybe, as a potential model to consider is that high-value models come to the market, but they come exclusively to the market and further models will follow later on. And with that, the focus is much more on those high-end high-value models on the consumer side to purchase them, to buy them and later on, that's followed up then maybe with lower value models in the quarters to come. From our point of view, I would say, yes, we see changes in strategies. Our customers is using to position the product attractively in the end market with consumers. We have seen launching cycles in fall. We have seen launching cycles in spring. Variations between the different product groups when this is happening. And so we also see currently, there are some adjustments and some movement. Overall, the innovation discussions, the development cycles are intensive overall. We first off see, on our side, the stamping technology, where we gained step-by-step more access and volume overall, still on a small scale, but also progressing nicely. And then thirdly, our very strong position as a fastening supplier for screws and other fastening solutions where we certainly have the leading position with our customer. And from that point of view, we look forward to exciting 2026 in terms of the model strategy. Other once again, as Volker has mentioned, also probably a more even development throughout the year, which is not a disadvantage to us overall. The cyclicality, which we have seen in the past, which was very much focused towards the second half of the year, had also some pension and stress attached to it. So from that point of view, we look forward and optimistic on what comes around the corner. Then from maybe the question one, yes?

Yes, and the hard disk drive business you asked for, hard disk drive business is predominantly driven by the nearline applications. So that is data centers, as said. We see significant investments in projects in data centers, and we are in very close contact with the main hard disk drive providers in that field, which is a specialized topic. We see further development in HDD into higher alloys into other materials in HDD as temperature in hard disk drive is pushed towards other levels as the prerequisites of cooling are changing. So that all puts demand on hard disk drive components, and we are in that field and enjoy good demand. From that, we also foresee that it's going to be a stable demand. We pushed that business to be CHF 80 million to CHF 100 million business turnover per year and are on good track on that. It's going to kind of keep there. It's not going to double or whatever. Some of these projections, we deem as overrated. We have the capacity in place. We can go with the demand. We can go with the demand not only from a volume side, but also from a technological side, meaning asset auto materials, higher alloys, and are with our customers in a clear way to model the demand so that they have stable and reliable supply from our side. So your question was what is the content within EC? How much is are described? So over the full year, we drive it to CHF 80 million to CHF 100 million business. That's it. I hope that helps your question. Thank you much.

Good. And we continue with Jörn Iffert from UBS. First question, do you see the beginning of an industrial production recovery in Europe now? Or what is your assessment?

That's a question we should ask you as analysts -- a much broader exposure to different markets and probably different companies overall. But certainly, yes, it's the question. It's the big elephant in the room. Is this now a recovery? Or is it not a recovery overall? We can clearly say that the customers which have adjusted to new opportunities, like, for instance, defense and aerospace, they do well. They grow. They have prosperous opportunities on hand overall and the ones which are still holding on and maybe not going with the new opportunities or maybe don't have the capabilities, those are still fairly challenged as [indiscernible] machine-building activities we see on the automotive side, also here and there. The challenges, especially with commodity applications and not high end, high need applications overall. So those customers in Distribution & Logistics are still challenged and are still suffering. So from that point of view, we do not believe that overall, we will see a start of a new cycle immediately. Probably will take a few more months. It will probably take another 6 to 12 months to firmly see the numbers getting better step-by-step and also returning back to organic growth patterns, which are being closer to the GDP of development overall in Europe or in a specific country. So still the industrial customers suffering to a large degree, but also customer groups are doing quite well. We believe we have seen the bottom. We believe we have seen a slight improvement and on the way to recovery is probably where we are, but not to recover yet, would formulate it that way. Takes patience, and we hope certainly by year-end that we have more insight and maybe a better outlook into the year 2027. But at this point in time, -- our strategy is we are cautious. We focus on innovation. We make sure we have best performing delivery service overall, but we are not getting overly excited about opportunities in the European industrial sector.