Schlatter results impacted by economic crisis

The Schlatter Group (SIX Swiss Exchange: STRN) recorded a 50 percent decline in net sales to CHF 68.3 million in the first half of 2009 (first half of 2008: CHF 138.0 million). The underutilization of capacity and the adverse foreign exchange environment led to a negative operating result (EBIT) of CHF –5.1 million (CHF 7.5 million) despite the reduction of all cost items. Net profit for the first six months of 2009 totaled CHF –3.9 million (CHF 4.3 million). The order backlog decreased by 42 percent to CHF 52.1 million compared to December 31, 2008.

The Schlatter Group's performance was significantly impacted by the economic crisis. The near-global freeze on capital spending during the first six months of the year affected all of the Group's products and markets, resulting in a 50.5 percent reduction in net sales to CHF 68.3 million in the first half of 2009. The welding segment, which generates a higher proportion of turnover, recorded a 48.3 percent decrease in net sales, while the weaving segment saw sales decline by 57.2 percent. Certain areas of business experienced a slight recovery towards the middle of the year. For example, sales of rail welding equipment exceeded expectations during the last few months. The Schlatter Group reported an order backlog of CHF 52.1 million as of June 30, 2009, corresponding to a decline of 41.5 percent compared to December 31, 2008 (CHF 89.9 million) and of 67.6 percent compared to June 30, 2008 (CHF 160.7 million).

At the end of 2008, the Schlatter Group implemented various measures to adapt its operations to the changed economic environment. Despite more restrictive cash management, the adjustment of headcount at its main sites and the introduction of short- time working in Schlieren and Münster with effect from May 2009, the Schlatter Group was not able to compensate for the decline in volumes. In addition to the underutilization of production capacity, the foreign exchange environment also impacted the operating result. The continued weakness of the euro against the Swiss franc led to the erosion of margins. These unfavorable operating conditions are reflected by the negative operating result (EBIT) of CHF –5.1 million (CHF 7.5 million).

Net profit for the first six months of 2009 totaled CHF –3.9 million (CHF 4.3 million). The slight strengthening of the euro compared to December 31, 2008, led to gains on foreign currency positions in the balance sheet and consequently to a positive financial result.

The low order intake in the first half of 2009 resulted in a lower volume of advance payments on customer projects. At the same time, the Schlatter Group completed a significant level of preliminary work on projects from the order backlog. In spite of this, net current assets decreased by CHF 4.4 million to CHF 32.5 million. Thanks to strict controls on expenditure as well as systematic cash management, net debt was reduced to CHF 1.2 million.

Operating free cash flow was slightly positive at CHF 0.5 million (CHF –14.5 million). The strict management of net current assets as well as a very cautious approach to capital expenditure helped to generate positive cash flow from operating activities. While restricting expenditure on property, plant and equipment in 2009, the Schlatter Group is investing in innovation and the preservation of knowhow. The targeted development of new technical concepts and solutions should provide the Group with enhanced opportunities in the market once conditions improve. In particular, the Schlatter Group plans to access additional markets through the development of a new mesh welding machine.

Headcount declined from 570 full-time equivalents as of December 31, 2008, to 499 full- time equivalents as of June 30, 2009. Net sales per employee declined by 46 percent to TCHF 129 (TCHF 239).

Welding segment
Net sales in the welding segment decreased to CHF 53.4 million (CHF 103.3 million). The order backlog totaled CHF 35.3 million as of June 30, 2009 (CHF 104.8 million). EBIT for the first half of 2009 was negative at CHF –5.3 million (CHF 6.0 million).

Weaving segment
The weaving segment reported a decrease in net sales to CHF 14.9 million (CHF 34.7 million). The order backlog totaled CHF 16.8 million as of June 30, 2009 (CHF 55.9 million). Despite the marked decline in sales, the segment generated positive EBIT of CHF 0.3 million (CHF 1.5 million).

Outlook
It is not possible to provide a reliable outlook at the present time. The Board of Directors and the Group Management anticipate that the environment will remain very difficult in the second half of 2009 and in the 2010 financial year.

The full version of the Half-Year Report 2009 of Schlatter Holding AG is available online at www.schlattergroup.com. A printed copy of the Report can be ordered from the company.