Engineered Components

Solid growth momentum

The Engineered Components segment generated organic growth of 3.2% amid a challenging market environment. All divisions contributed to this growth, which was largely driven by the launch and ramp-up of new projects.

Key figures Engineered Components

Growth at all four divisions

The Engineered Components segment recorded sales of CHF 967.0 million in 2018, which represents an increase of 4.4% versus the previous year. All divisions contributed to this growth. Sales momentum weakened particularly in the fourth quarter, compared with the prior-year period.

This can be traced to, inter alia delays in the homologation of new engines in the automotive industry, a general market saturation in the smartphone business and an increasing uncertainty among market participants caused by US-China trade tensions.

Sales in the aircraft business at the Industrial division remained slow and fell short of the prior-year level due to low demand for the Airbus A380 and a flatter than expected production ramp-up for the Airbus A350. The Medical division, meanwhile, returned to the growth track as anticipated and displayed growing momentum.

Currency translation had a declining effect as the year progressed and contributed 1.3% to reported sales growth, while changes in the scope of consolidation were marginal at –0.1%. Organic sales growth of 4.4% in the core business was generated primarily by the launch and ramp-up of various new projects.

Attractive profitability confirmed

Profitability was burdened in the first half by increased raw material costs and high advance payments in new projects. These two negative factors had less of an impact in the second half. The cost increases were passed through to customers and successful innovations led to first serial deliveries to customers. Receding sales momentum during the second half held back the expected increase in profitability. EBIT for the period under review amounted to CHF 176.6 million, which fell short of the adjusted prior-year level (CHF 185.7 million), but the resulting EBIT margin of 18.2% remained attractive compared with industrial sector benchmarks.

Investment activities continued

Engineered Components maintained its high level of investments in project-specific plant and equipment and in projects that will fuel its future growth. Capital expenditure for the year amounted to CHF 116.3 million or 12% of segment sales. Construction of the new production platform in Nantong (north of Shanghai, China) remains on schedule and contributed in the year under review about a quarter of total capex, at CHF 30 million. Production at the new site is scheduled to commence during the spring of 2019. After the completion of this major project, the segment’s investment activity will be scaled back to a lower level in 2019.

Automotive division

Growth course continued

Growth in the Automotive division was fueled by the launch and ramp-up of innovative customer projects. Although strong growth was recorded during the first half, growth momentum slowed down during the second half and in particular during the fourth quarter. Sales trends reflected both the strong Swiss franc and the introduction of a new pan-European test cycle (“Worldwide harmonized Light vehicles Test Procedure”, WLTP). The Automotive division also observed a decline in demand in China due to the country’s ongoing trade tensions with the US.

Growing faster than the market

Despite the slower pace of growth during the second half, the Automotive division again grew much faster than the market. The trend is towards more comfort, improved safety and increased efficiency, and thus more importantly, the electrification of vehicles. Autonomous driving is an important growth driver and the Automotive division is benefiting from it. These innovative trends are increasing the division’s market penetration rates, and as a consequence its shipment volumes of previously launched product solutions are growing as well. Furthermore, new projects are being launched to develop the next generation of products.

Innovation skills enhanced

The acquisition of new projects underlines the high competi­tiveness of the Automotive division. SFS’ manufacturing platform around the world is a major factor in its competiti­veness. This creates the opportunity to realize new projects or follow-up projects at different locations, and to supply international customers locally with the required identical components. Another decisive factor when it comes to the acquisition of new projects is SFS’ proven innovation capability, which rests on its impressive manufacturing technology expertise and specific application knowledge. Customers clearly appreciate this and SFS was pleased to receive Bosch’s “Crazy for SuCCess” award for the second time in the short history of this award.

Adjustment for plant layout is planed

The relocation of Construction division production capacity at the Heerbrugg (Switzerland) site to foreign sites over the past 18 months has freed up some floorspace that the Automotive division will use to pursue its growth strategy. Numerous adjustments will be made to the plant’s layout until the end of 2020. This will require additional costs initially, but lead to significant efficiency and productivity gains in the medium term.

Positive outlook expected

In view of the pending production ramp-up of new projects, the Automotive division expects to generate renewed growth in 2019, although the overall market is expected to be flat.

Electronics division

Slight sales increase achieved

The Electronics division achieved soft sales growth in 2018 and strengthened its market position in the mobile devices business. In 2018, Electronics once again demonstrated its distinctive ability to ramp up production of new products (time-to-volume) in the shortest time possible. Its growth momentum eased somewhat during the last quarter in the wake of decreasing market momentum.

Customer relationships broadened

In the Lifestyle Electronics business (smart watches and smart home applications), the Electronics division’s Unisteel brand enjoyed a string of successes. It steadily expanded its customer portfolio, acquired innovative new projects and confirmed its critical role as a development partner. The hard disk drive business continued to grow despite the ongoing decline in total addressable market. Thanks to its high reliability and stringent quality standards, the division was able to grow its share of content and broaden its supply spectrum: for example, it succeeded in expanding its manufacturing contract with a key account to include precision plastic components.

Successfully entered new application area

The Electronics division made substantial preparatory investment in connection with a new targeted application area. Initial sales from this project were recorded during the second half of the year, in line with the original project plan. The precision parts are manufactured by cold forming, a manufacturing technology that is not yet widely used in the electronics industry. Through this project, the division also broadened its machine tool development and manufacturing knowledge. The launch of these new products marked another milestone in the positioning of Unisteel as a trusted partner in the development of precision components for the electronics industry. Unisteel celebrated its 30th corporate anniversary this year, and the evolution of its services and products over the years closely resembles that of the entire SFS Group. Originally operating as a distributor, it became a manufacturer of mechanical fastening systems and is now a trusted engineering partner for precision parts, backed by high technology competence and application knowledge.

Manufacturing technologies united under one roof

Construction of the new manufacturing platform in Nantong (north of Shanghai, China) is on schedule. Various sites in the Shanghai area will be progressively relocated to this new site. On completion, it will be SFS Group’s second-largest site. All SFS’ major manufacturing technologies will be available at this one location. This is an important precondition to ensure the continuing successful development of the Electronics division’s business activities as well as that of the other divisions of SFS Group (amongst others division Automotive). Manufacturing operations at the new site will gradually commence in the first half of 2019.

Good outlook forecasted

The basic outlook for 2019 is positive: the Electronics division expects increased sales growth in the second half of the year, particularly with the planned ramp-up of new product applications. Sales in the hard disk drive business are expected to decline due to a continued contraction in market demand. Non-recurring expenses for product transfers to the new manufacturing site in Nantong will have a material effect on divisional profits.

Industrial division

Stable development achieved

The Industrial division experienced stable sales trends compared with the previous year. The various industries served by the division showed mixed trends.

Success with new projects realized

The division’s fasteners for cutting tools sold well as did several of its micro-molding solutions, but the aircraft business stagnated due to lower demand for the Airbus A380 and a flatter than expected production ramp-up for the Airbus A350. However, there have been signs of a change in trend. The division was also successful in acquiring new projects and it continued to upgrade its manufacturing activities at Heerbrugg, Switzerland over the course of the year.

Expansion planed

Sales in 2019 are expected to be slightly higher thanks to the attractive project pipeline and higher order backlog in the aircraft business. In connection with pending growth projects, it is planed to expand the Stamm’s site in Hallau (Switzerland) in 2019 and 2020.

Medical division

Growth dynamic strenghtened

The Medical division is back on a growth track. Its growth momentum improved over the course of the year. Standardized manufacturing platforms are a competitive advantage for this division, wich are located in the US and Costa Rica. There they operate as local suppliers to leading clusters of the medtech industry.

Project pipeline further strengthened

Business of products used in minimally invasive and neuro-surgical applications continued to grow. The Medical division demonstrated its expertise in manufacturing hybrid parts made of plastic and metal. However, some delays were experienced at the customer end during the production ramp-up of certain projects for orthopaedic applications. The launch of numerous new projects and the associated initial launch expenses had a negative effect on divisional profitability. Overall the Medical division’s project pipeline continued to grow.

Productivity gains still targeted

In view of the growing project pipeline, the Medical division expects to deliver solid growth in 2019. Targeted investments will be made in connection with these growth projects. These and other measures will boost automation and efficiency.

The new manufacturing platform in Nantong (north of Shanghai, China) unites the core technologies on one site