2011/12 interim results fall short of last year's strong performance

Media Release

2011/12 interim results fall short of last year's strong performance

Sharp rise in new orders will have a positive impact on the second half-year

As announced, the results posted by Schaffner Group for the first half of 2011/12 failed to keep pace with the previous year's strong performance. Net sales of CHF 81 million (1st half of 2010/11: CHF 98.6 million) are 17.9% lower year-on-year (13.8% in local currencies). After adjustment for the CHF 7.7 million contribution to sales of the newly consolidated Schaffner MTC LLC, this amounts to a fall of 25.7%. Although production capacities were systematically adapted to reflect demand and fixed costs were reduced slightly despite the first-time consolidation of Schaffner MTC, the drop in sales led to a decline in operating result (EBIT) to CHF 1.4 million (CHF 9.0 million), with an EBIT margin of 1.7% (9.1%). Net profit amounted to CHF 0.3 million (CHF 7.2 million). Free cash flow amounted to CHF 2.0 million (CHF 4.6 million). Schaffner had an equity ratio of 39.8% (41.6%) at the end of March 2012. New credit agreements with a total volume of CHF 50 million and three-year terms were concluded with the Group's four principal banks; the conditions remained essentially unchanged.

Moving out of the trough – order intake picking up

At the end of the first six months of the current fiscal year new orders are considerably higher than during the second half of the previous year. During the first half of 2011/12, the book-to-bill ratio was greater than 1 in all three divisions and hit 1.10 for the entire Group compared to 1.03 after the first six months of the 2010/11 fiscal year and 0.97 after twelve months. On the one hand, a new inventory cycle has begun and electronic component distributors in particular have started investing in larger inventories once again. At the same time, demand for products for photovoltaic applications and rail technology is also picking up. Integration of the US company Schaffner MTC LLC, acquired in September 2011, into the Power Magnetics division has been successfully completed. Schaffner MTC contributed CHF 7.7 million (USD 8.5 million) or 9.6% of the Schaffner Group's half-year sales and met expectations with an EBITDA margin in the upper single-digit range.

Markets

Strategic growth markets generated 63% (64%) of sales during the first half of 2011/12. While the share of sales generated by the renewable energy market dropped to 15% (20%) and that generated by rail technology fell to 11% (17%), the share generated by the efficient drive systems market increased to 23% (19%) and that from automotive electronics rose to 14% (8%). The regional breakdown of sales shows that North America's share of sales more than doubled from 8% to 17% as a result of the first-time consolidation of Schaffner MTC. Europe remains the Schaffner Group's largest geographical market with 49% (60%) of sales although for the first time it accounted for less than half of Schaffner's total sales. The Asia-Pacific region accounted for 34% (32%) of consolidated sales, 18.8% (20%) of which came from the Chinese market.

EMC division

As a result of the implementation of a divisional structure as of October 1, 2011, the harmonic filters product group was reassigned from the former Power Quality segment to the EMC division in order to promote synergies in application development and sales. Sales in the EMC division amounted to CHF 50.2 million (adjusted year-on-year figure: CHF 71.8 million). In local currencies this change amounted to -25.5% on a like-for-like basis. While sales during the first half of the previous year were characterized by strong sales for photovoltaic applications prior to the reduction of feed-in tariffs in Germany, sales remained low until the middle of the first half of 2011/12. Moreover, general economic insecurity prompted distributors to reduce their inventories at the end of the last calendar year. The low order volume led to an underutilization of capacity in the factories, resulting in a lower-than-expected operating result in the division of CHF 5.5 million (adjusted year-on year figure: CHF 12.3 million). Order intake picked up during the second quarter of 2011/12 and the EMC division ended the first half of the year with a book-to-bill ratio of 1.07. Of particular note were new orders from the photovoltaic industry and for products to be used in charging stations for electric vehicles. During the first half of the year, the EMC division accounted for 62.1% (adjusted year-on year figure: 72.9%) of Group sales.

Power Magnetics division

The division sales of CHF 20.0 million (adjusted year-on-year figure: CHF 18.4 million) for the first half of 2011/12 contain the CHF 7.7 million contribution to sales of the newly consolidated Schaffner MTC. On a like-for-like basis, division sales were about one third lower than the same period of the previous year and in local currencies this change amounted to -30.7%. The 2011/12 first-half result was characterized by low capacity utilization in the factories, due in particular to a lack of orders from the rail technology and renewable energy markets in China and Germany. The division's operating result amounted to CHF -0.6 million (previous year: CHF 0.4 million). Demand from the renewable energy market began to recover during the second quarter of 2011/12 and also picked up in the area of rail technology applications, specifically with projects in China, Russia and North America. The Power Magnetics division had a book-to-bill ratio of 1.09 at the end of the first half of the year. During the first half of the year, the Power Magnetics division accounted for 24.7% (adjusted year-on-year figure: 18.6%) of Group sales.

Automotive division

Sales rose by 27.1% to CHF 10.7 million (CHF 8.4 million) compared to the first half of the previous year. In local currencies this represented an increase of 34.3%. During the first half of 2011/12, significant investments continued to be made in development and in the launch of a new series of projects as well as in stepping up cooperation with automobile manufacturers in the area of e-mobility. Due to high costs for future products, the division result of CHF -0.3 million (CHF -0.2 million) was slightly negative. The Automotive division had a book-to-bill ratio of 1.26 in the first half of 2011/12. Important series production launches for convenience and safety system applications will have a considerably positive impact on division sales as of summer 2012. Thanks to the successful acquisition of projects, the Schaffner Group expects the Automotive division to be able to achieve its sales target for fiscal 2014/15 of CHF 40 million as early as fiscal 2013/14, one year earlier than planned. During the first half of the year, the Automotive division's contribution to Group sales increased to 13.2% (adjusted year-on-year figure: 8.5%).

Change in the Board of Directors

Hans Hess, Vice Chairman of the Board and a member since 2006, will step down from the Board of Directors of Schaffner Holding AG upon expiry of his term of office at the forthcoming Annual General Meeting due to occupational reasons. The Board of Directors and Group Executive Board would like to thank Hans Hess for his valuable contribution to the Schaffner Group and look forward to continuing working with him during the remainder of his term.

Outlook

The prospects of all divisions have improved across the board. Due to strong order intake during the first half of the year, sales during the second half of 2011/12 should exceed those of the first half and the same period of the previous year in all divisions. Major new product launches will give sales in the Automotive division a further boost as of summer 2012. Overhead expenses of the Schaffner Group continue to be lowered on a structural level. With all divisions having made a positive contribution to the second-quarter results, Schaffner also expects all divisions to close the year with a positive result. Provided demand stays high and key currencies remain stable, the Schaffner Group expects consolidated sales during the current fiscal year of between CHF 170 million and CHF 180 million and an EBIT margin in the 4 to 6% range.

Luterbach, May 14, 2012

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