Datwyler Group sees significant increase in profitability

The markets relevant for Datwyler continued to recover in 2010. At Group level, the Group lifted net revenue by 17.6% year-on-year to CHF 1,319.5 million (2009: CHF 1,122.2 million). Reichelt Elektronik, which has been consolidated since the start of 2010, contributed CHF 149.4 million or 13.3% to revenue growth. The negative currency effect of presenting consolidated accounts in Swiss francs amounted to CHF 61.4 million or 5.5%. Adjusted for these two factors, organic growth came to 9.8%

Solid improvement in profitability and capacity utilisation
The Datwyler Group enjoyed a sizable year-on-year increase in profitability in 2010 thanks to higher capacity utilisation combined with an optimised cost base. Profitability was positively impacted in particular by the successful turnaround in the specialist distribution business and the first-time consolidation of Reichelt Elektronik. In contrast, the strength of the Swiss franc had a negative impact. Towards the end of the year under review this currency appreciation severely pressured margins in the export oriented Cabling Solutions (previously Cables) and Sealing Technologies (previously Rubber) Divisions. Thanks to the early implementation of measures to boost productivity, both operating profit (EBIT) and the net result increased by more than 50% year-on-year, to CHF 127.5 million (2009: CHF 80.0 million) and CHF 98.2 million (2009: CHF 63.7 million), respectively. The foreign exchange loss at EBIT level was CHF 5.1 million. The EBIT margin was 9.7% (2009: 7.1%), which is well within the target range of 8% to 12%. The result also includes one-off costs, prepayments and accrued income totalling CHF 7.8 million for the transfer of the existing ICT infrastructure to the announced outsourcing arrangement. In view of the improvement in profitability and the consistently strong balance sheet, which shows an equity ratio of 68.9% (2009: 63.5%), the Board of Directors will propose an increased dividend of CHF 2.20 per bearer share (2009: CHF 1.20) and CHF 0.44 per registered share (2009: CHF 0.24). This represents a payout ratio of 34.6%.

Revenues increase in all divisions
The Technical Components Division recorded a 32.2% year-on-year increase in net revenue, driven primarily by Reichelt Elektronik, which was acquired at the beginning of 2010. 2010 witnessed a return to the profitability of previous years, with an EBIT margin of 10.8%. After adjustment for the negative currency effect, the Pharma Packaging Division posted 7.0% organic growth in revenues. At 12.3%, the EBIT margin fell short of expectations as a result of rising raw material prices and one-time charges incurred for the further optimisation of quality management. In the Cabling Solutions Division, net revenue increased by 10.0%. After adjustment for the negative currency effect and the positive contribution of the increase in the price of copper, organic revenue grew by 6.5%. The progressive weakening of the euro during the year under view led to a substantial 55.6% reduction in the operating result (EBIT), with only the foreign subsidiaries generating earnings. In the Sealing Technology Division, the clear recovery of the automotive industry led to a 13.4% rise in net revenue. Despite the weakness of the euro, thanks to the production facilities in Eastern Europe and Mexico the operating result (EBIT) at Division level rose by 38.4% compared with crisis-hit 2009.

Sustainably profitable growth
The Datwyler Group is emerging from the financial and economic crisis in a stronger position than ever. Since the operational improvements introduced by Datwyler in past years proved their effectiveness during challenging periods as well, the Group can now focus more on sharing in the global growth momentum. The paramount strategic goal remains, the generation of sustainably profitable growth in well-defined niche markets. The Datwyler Group has set a long-term target of some CHF 2 billion in revenues in 2015. The Group's strong balance sheet provides a healthy basis for financing both organic growth and growth through acquisitions. Datwyler also intends to continue to raise its profitability. The Group has recently set itself the goal of an EBIT margin target band of 9% to 12% over the business cycle.

Strengthening global competitivness
To exploit its promising positioning and realise its ambitious goals, Datwyler is working at all levels to strengthen its global competitiveness. The implementation of uniform management tools at Group level is part of a detailed balance scorecard system that is already well-advanced. Similarly, Group-wide simplification and standardisation of the ICT infrastructure is also in the process of implementation. Datwyler is also busy simplifying its financial structures and processes with the object to exploit financial synergies. The new corporate image and new brand emphasis give better visual expression to Datwyler's identity as a strong group. Optically, the Swiss brand "Dätwyler" merges with the international "Datwyler" as the future brand for the Cabling Solutions Division (previously Daetwyler Cables), Sealing Technology Division (previously Daetwyler Rubber) and the Pharma Packaging Division (previously Helvoet Pharma).

Expansion of Datwyler's international presence
Expanding physical international presence has greatest priority in all divisions. This holds particularly for the global pharmaceutical and automotive markets, in which a company's own plants in all leading regions of the world constitute a significant competitive plus. Accordingly, in 2010 the Pharma Packaging Division started construction on its own production plant in India. It is scheduled to come on stream early in 2012. At the same time, the division is evaluating alternatives for its own production site in China. After the start-up of a plant in Mexico in 2009, in 2010 the Sealing Technologies Division completed preparations for the construction of a plant in China. Production of the first prototypes is scheduled for the second quarter of 2011. In the catalogue distribution business Datwyler intends in particular to build on its strong position in the East European markets, including Russia and Ukraine, through organic growth as well as acquisitions. Immediate concerns for the company in the Cabling Solutions Division are opening its own sales offices in Dubai and Moscow and expanding the two production plants opened in China since 1998.

Repositioning of the Swiss cables site, plus relocation
Because the Cabling Solutions Division produces in Switzerland, it is particularly vulnerable to the weakness of the euro. Since Datwyler expects the euro to remain at a low level in 2011, the financial situation at the Altdorf site remains extremely critical. The following measures are designed to safeguard the long-term future of the Altdorf production site for high-quality products even under difficult economic conditions: productivity improvements, optimised layouts and investment in machinery and buildings amounting to around CHF 30 million spread over the next four years. As the market is shifting toward Asia, Datwyler plans to relocate production of lift cables to its existing plant in China. The Group is also considering moving its cable assembly operations to Eastern Europe. Overall, Datwyler plans to cut around 100 jobs at its Altdorf site between now and 2012. The legally required consultation process with the staff association and unions has been initiated. Plans are in place for a redundancy scheme which includes a job placement centre. Implementing these planned measures is expected to result in one-off costs of approximately CHF 10 million in 2011. At the Altdorf site of Cabling Solutions Division as well as in Schattdorf (Sealing Technology Division) the two extra working hours per week will be discontinued from 1 April 2011. The additional hours worked since the beginning of 2011 will be fully credited.

Outlook for 2011: Healthy growth in demand
Datwyler expects that all four divisions will experience a healthy growth in demand in 2011. Margin growth will be challenged by the rising costs of raw materials and the negative impact of currency developments. However, Datwyler is confident that even in the event of this scenario materialising, the Group's strong market position will enable it to improve on the previous year's figures with respect to both revenues and profit. On the basis of the current portfolio the Datwyler Group has set itself a target band for EBIT margin of 9% to 12% over the business cycle.

Contact
Datwyler Holding Guido Unternaehrer Head Corporate Communications Tel. +41 (0)41 875 19 00