SFS Group AG

SIX:SFSN

Earnings Call Analysis

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, welcome to the Presentation of Full Year

Results

2021

Investors

and

Analyst

Conference

Call

and

Live

Webcast.

I

am

Alice,

the

Chorus

Call

operator.

I

would

like

to

remind

you

that

all

participants

will

be

in

listen-only

mode

and

the

conference

is

being

recorded.

The

presentation

will

be

followed

by

a

Q&A

session.

[Operator Instructions]



The

conference

must

not

be

recorded

for

publication

or

broadcast.

At

this

time,

it's

my

pleasure

to

hand

over

to

Mr.

Jens

Breu. Please

go

ahead,

sir.

[Jens Breu, Chief Executive Officer, SFS Group AG]

Thank

you very

much

and

good

morning

and

welcome

to

the

presentation

on

our

full year

2021

results.

Today's

speakers

are

Volker

Dostmann,

CFO

and

Jens

Breu,

CEO

of

the SFS

Group.

The

agenda

for

the

presentation

of

the

fiscal

2021

results

cover

positioning

of

SFS

key

takeaways

of

the

year

2021,

development

by

segment,

development

of

key

financials,

the

outlook

for

2022,

as

well

as

the

opportunity

for

Q&A

before

closing.

I

start

now

with

the

positioning

of

the

SFS Group. SFS

[ph]



are

companies

you

usually

unnoticed (00:01:25)

24

hours

a

day,

seven

days

a

week,

reliably

through

everyday

life.

Our

mission-critical

precision

components,

mechanical

fastening

systems,

and

tools

for

selected

niche

applications

are

embedded

in

the

successful

products

and

value

creation

activities

of

our

customers

and

fulfill

their

service

with

high

reliability

in

the

required

precision

and

cost

effectiveness.

Our

value

proposition,

sustainably

inventing

success

together.

Sustainability

is

important

to

us.

It

is

part

of

our

DNA.

Sustainable

thinking

and

acting

is

also

an

important

innovation

driver

and

gives

us

the

opportunity

to

question

our

processes

and

products

on

a

daily

basis

and

to

constantly

improve

them

for

the

benefit

of

all

stakeholders.

The

development

of

more

sustainable

products

and

solutions,

our

customers

gives

us,

as

a

value

engineering

specialist,

a

variety

of

opportunities

to

offer

our

customers

added

value

with

our

know-how,

true

to

the

mission

statement,

inventing

success

together.

In

doing

so,

we

strive

in

close

cooperation

with

customers

and

suppliers

to

continuously

increase

cost

transparency

and

also

to

include

other

aspects

of

sustainability

in

the

calculations.

In

addition,

the

value

proposition

is

supported

with

our

vision

statement,

every

employee,

a

co-entrepreneur,

and

achieving

sustainable

success

together,

which

has

shaped

our

path

over

the

years.

This

striving

for

sustainable

success

through

true

partnership

is

important

to

us.

It

is

firmly

anchored

in

our

core

values

and

actively

pursued

inside

and

outside

the

company

on

a

daily

basis.

While

the

business

model

and

customer

groups

of

our

three

segments

differ

depending

on

the

end-market,

the

organization

is

designed

in

such

a

way

that

the

natural

synergies

generated

are

maximized

across

all

areas.

These

primarily

relate

to

technology,

technological

competence

and

potential

cross-selling

opportunities

with

customers.

So,

for

instance,

in

the

segment

Engineered

Components,

we

industrialize

tools,

in

the

segment

Fastening

Systems,

we

sell

installation

tools,

and

in

the

segment,

Distribution

&

Logistics,

we

trade

with

tools.

New

with

the

Hoffmann

Group,

after

closing

also

in

the

segment

distribution

logistics

internationally.

With

acquisition,

we

are

making

substantial

progress

in

building

in

each

segment

a

global

business

platform

for

the

benefit

and

value

generation

of

our

customers

and

SFS.

Other

strategic

core

pillars

which

have

been

proven

for

effectiveness

during

COVID-19

pandemic

include:

our

local

for

local

strategy,

because

customer

proximity

is

essential

for

our

value

proposition

and

it

allows

us

to

achieve

a

more

reliable

delivery

performance,

as

evidenced

by

the

many

customers

we

have

gained,

especially

the

construction

division,

during

the

period

under

review;

the

diversification

in

end

markets,

regions

and

sales

channels

with

the

benefit

of

having

better

balance

revenue

development;

the

solid

financial

position

and

through

that

the

ability

to

continue

the

investments

in

innovation

and

realization

of

growth

projects

and

opportunities

even

during

crisis

times.

Focused

technologies

like

with

our

core

set

of

tooling-based

technologies,

relevant

secondary

operations

and

standardized

machine

park

allow

us

to

reduce

risk

and

maximize

flexibility.

Our

focus

on

relevant

megatrends

like

the

digital

revolution,

economy

globalization,

evolving

consumption

in

health

and

wellness,

resource

constraints

and

demographic

asymmetries

create

strong

underlying

demand

patterns

even

during

crisis.

I

continue

with

the

key

takeaways,

which

can

be

best

summarized

as

record results

and

inclusion

of

Hoffmann.

In

a

dynamic

market

environment,

characterized

by

high

demand,

supply

chain

bottlenecks,

and

the

COVID-19

pandemic,

SFS

boosted

its

sales

by

11%

to

CHF

1.893

billion.

All

segments

and

regions

contributed

to

the

growth,

enabled

by

robust

supply

chains

and

the

ability

to

continuously

fulfill

customer

orders.

High

capacity

utilization

drove

profitability

and

resulted

in

an

EBIT

margin

of

15.9%.

Focusing

on

mainly

temporary

adjustments

of

production

capacity

during

COVID-19

pandemic

allowed

to

benefit

from

high

demand

situation.

Prudent

cost

and

price

management

further

supported

profitability,

investments

into

projects,

including

production

capacity

expansion,

a

new

generation

ERP

system

and

cyber security

defense

continued

and

amounted

to

CHF 121.4

million,

ongoing

focus

to

achieve

the

set

goals

and

targets

in

sustainability,

release

of

a

CO2

roadmap

containing

measurable

targets

for

reduction

of

CO2

emissions.

With

the

inclusion

of

Hoffmann,

we

are

setting,

as

mentioned,

the

prerequisites

for

the

internationalization

of

the

D&L

segment

and

establish

international

presence

in

quality

tools

with

Hoffmann.

Both

companies

are

positioned

as

leading

providers

in

their

industries,

share

similar

value

proposition

and

value

systems,

and

look

back

on

a

longstanding

and

successful

partnership.

Inclusion

at

the

shareholder,

board

of

directors

and

executive

management

levels

at

SFS

establishes

continuity

and

the

basis

for

successful

future

development.

The

transaction

will

have

a

positive

impact

on

the

earnings

per

share

from

the

first

year

on.

In

2021,

Hoffmann

generated

around

€1

billion

in

sales

with

a

workforce

of

around

3,000

passionate

employees.

Joining

forces

will

mark

a

milestone

and

result

in

attractive

growth

opportunities

through

cross-selling

of

mechanical

fastening

systems

and electronic

procurement

solutions,

leverage

benefits

and

digitization,

logistics,

software

and

purchasing,

getting

access

to

Europe's

largest

tool

logistics

center.

Transaction

closing

is

expected

in

the

first

half

2022.

Continuing

with

the

development

by

segment

where

I

will

start

with

the

headlines

of

the

Engineered

Component

segment

in

which

greater

profitability

through

higher

capacity

utilization

could

be

achieved

through

sustained

substantial

recovery

driven

by

pent-up

demand

in

automotive-related

areas

and

the

industrial

sectors,

however,

negatively

impacted

by

supply

chain

bottlenecks

in

the

second

half

of

the

year.

Leading

to

a

reported

sales

in

the

fiscal

year

2021 of

CHF

975.2

million,

up

by

8.6%

versus

fiscal

year

2020.

The

Electronics

division

profited

from

positive

market

environment.

The

Medical

division

enjoyed

only

a

slightly

positive

development,

reflecting

demand

in

their

respective

niche

markets.

However,

this

was

partially

offset

by

the

good

progress

made

in

the

development

of

our

global

medical

production

platform.

In

general,

good

demand

situation

led

in

Engineered

Components

segment

to

high

capacity

utilization

thus

resulting

in

an

EBIT

margin

of

17.1%.

The

key

messages

of

the

automotive

division,

market

recovery,

lost

momentum

in

the

second

half

of

the

year

brings

to

light

after

good

recovery

in

the

first

half

year

driven

by

strong

pent-up

demand,

the

second

half

year

was

increasingly

impacted

by

shortages

in

semiconductor

supply

chain,

large

project

wins

in

electric

brake

systems

testimony

to

a

strong

competitive

position.

Growth

projects

require

investments

into

manufacturing

capacity

in

Heerbrugg,

Switzerland

and

Nantong,

China.

Stable

market

conditions

and

a

step-wise

recovery

of

semiconductor

supply

is

expected

over

the

course

of

the

year

2022.

The

Automotive

division

is

well

positioned

to

continue

to

significantly

outpace

market

growth

in

fiscal

year

2022.

The

key

message

of

the

Electronics

division,

good

development

with

record

results

in

the

first

half

year

follow

the

same

pattern

as

previously

outlined

for

the

division

Automotive.

Record

high

results

in

the

first

half

year.

The

second

half

year

was

troubled

by

supply

chain

bottlenecks

on

the

supply

side

of

our

main

customers.

Good

development

in

Lifestyle

Electronics

and

Accessories,

stable

demand

in

smartphones.

Unexpectedly

strong

demand

for

high-capacity

hard

disk

drives

further

supports

the

business

activities

in

Malaysia.

High

capacity

utilization

in

Nantong,

China,

besides

the

platform

requires

[indiscernible]



(00:11:30)

announced

an

expansion

to

cope

with

increasing

demand

also

from

other

divisions.

The

Electronics

division

expects

for

fiscal

year

2022

a

moderate

development

on

a

high

level.

The

Industrial

division

observed

a

significant

recovery

in

demand

throughout

the

year

where

the

recovery

that

began

in

the

second

half

of

2022

(sic) [2020] (00:11:55) and

encompassed

nearly

every

niche

market

served

by

the

division.

Luckily,

not

materially

impacted

by

supply

shortages

by

our

customers,

many

business

areas

achieved

revenues

above

pre-pandemic

levels.

The

stabilization

of

the

Aircraft

business

was

achieved

at

low

level.

The

situation

remains

challenging

with

only

initial

signs

of

recovery.

Overall,

the

Industrial

division

expects

market

demand

to

remain

good

in

fiscal

year

2022

than

the

reporting

year

2021,

realized

new

projects

will

further

underpin

the

positive

market

development.

In

the

Medical

division,

only

a

slightly

positive

development

was

achieved

considering

the

most

important

financial

KPIs.

Overall,

the

division

was

able

to

achieve

a

slightly

positive

organic

sales

trend,

however,

varying

across

product

categories.

Demand

for

instruments

and

implants

for

orthopedic

surgeries

were

still

negatively

impacted

by

COVID-19

pandemic.

Applications

in

production

ramp-up

for

sports

medicine,

however,

showed

good

growth

development.

Substantial

progress

was

made

on

filling

the

attractive

project

pipeline,

particularly

also

in

Asia,

high

attention

to

efficiency

gains

and

operational

excellence

yielding

initial

results.

The

Medical

division

expects

an

overall

positive

development

in

the

fiscal

year

2022.

In

the

Fastening

Systems

segment,

record

results

were

achieved.

In

a

dynamic

market

environment,

good

market

positioning

and

robust

supply

chains

led

to

a

record

sales

of

CHF

574.9

million

or

17.4%

year-over-year.

High market

demand

put

supply

chains

and

material

prices

under

considerable

strain.

Ongoing

efforts

to

expand

Construction's

market

access

were

supported

with

the

acquisitions

of

Jevith

in

Denmark

and

GLR

Fasteners

in

the

US.

The

successful

relocation

of

the

Riveting's

Chinese

production

site

to

Nantong

was

completed.

High capacity

utilization

and

efficiency

gains

resulting

in

a

record

EBIT

margin

of

17.4%.

Looking

into

the

details

of

the

Construction

division,

we

can

state

that

the

division

benefited

from

consistently

high

market

demand.

Strong

demand

led

to

exceptionally

good

growth

in

all

application

areas

in

Europe

and

North

America.

Market

share

gains

were

achieved,

thanks

to

robust

supply

chains,

good

material

availability,

and

a

high

degree

of

in-house

value-add.

Global

trends

towards

energy-efficient

building

envelopes,

streamlined

fastening

processes,

and

accident

prevention

remain

intact

and

provide

a

solid

basis

for

future

innovation,

activities,

and

growth.

Market

access

has

been

expanded

with

two

smaller

add-ons.

The

Construction

division

expects

in

fiscal

year

2022

market

conditions

to

remain

positive

and

a

further

growth

in

organic

terms.

The

Riveting

division

experienced

as

well

dynamic

demand,

however,

in

the

second

half

dampened

by

semiconductor

shortages.

Nevertheless,

stable

growth

has

been

achieved

driven

by

industrial

and

construction-related

areas.

Reduced

demand

from

automotive

customers

was

observed

in

the

course

of

the

year

due to semiconductor

shortages.

Innovative

product

solutions

such

as

network

tools

and

sustainability-related

applications

offered

substantial

growth

potential.

The

successful

relocation

from

Nansha,

China

to

the

Nantong

platform

will

further

benefit

the

division's

development

in

Asia

by

becoming

more

attractive

for

customers

and

allowing

to

reduce

costs

by

using

the

synergies

of

the

technology

platform.

The

Riveting

division

expects

continued

market

recovery

and

overall

growth

in

organic

terms

in

the

fiscal

year

2022.

In

the

Distribution

&

Logistics

segment,

we

have

worked

intensively

in

establishing

an

international

presence

in

quality

tools.

Stable

growth

throughout

the

year

resulting

in

reported

sales

of

CHF

343

million

or

8.2%

year-over-year.

The

segment

focused

intensively

on

maintaining

a

broad

focus

on

customer

needs

through

the

continued

offering

of

innovative

solutions

and

strategic

organizational

alignments

to

be

even

more

customer-centric.

The

envisioned

addition

of

Hoffmann

will

lend

the

D&L

segment

an

internationally

strong

position

in

the

attractive

area

of

quality

tools.

Strong,

occasionally

volatile

demand

led

to

good

capacity

utilization

and

an

EBIT

margin

of

9.4%.

The

Swiss

market

conditions

in

fiscal

year

2022

are

expected

to

remain

stable,

leading

to

an

overall

positive

development.

Besides,

we're already

looking

forward

to

the

closing

of

the

Hoffmann

acquisition

expected

in

the

first

half

2022,

allowing

us

to

even

more

leverage

on

the

combined

SFS-Hoffmann

growth

potential

The

targeted

strategic

growth

initiatives

can

be

summarized

in

the

following

four

dimensions.

Dimension

number

one,

use

of

the

new

platform

through

further

penetration

of

key

accounts,

targeted

acquisitions

of

customers

with

high

potential,

development

of

regional

growth

strategies

based

on

local

expertise

along

our

local

for

local

mindset.

Dimension

number

two,

focus

on

innovation,

new

products

and

product

lines,

which

includes

continuous

market

launch

of

new

products

and

innovative

supply

chain

solutions,

joint

development

together

with

our

customers

and

thus deeper

customer

integration.

Dimension

number

three,

further

regional

expansion.

Here,

we

target

the

expansion

in

the

growth

markets

in

the

US

and

China,

besides

supporting

existing

growth

initiatives

for

broader

market

access,

for

instance,

in

Europe

and

other

existing

activities.

And

then

dimension

number

four,

driving

forward

customer-centric

digitization

initiatives,

which

include

the

expansion

of

diverse

e-commerce

solutions,

as

well

as

the

further

development

of

digital

service

products

for

connected

manufacturing.

With

that,

I

conclude

the

presentation

on

the

development

by

segments

and

hand

over

to

Volker

for

the

development

of

the

key

financials.

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

Thank

you,

Jens.

Good

morning,

everybody.

Warm

welcome

from

my

side.

The

positive

start

into

the

year

2021

gave

us

a

solid

base

to

build

on.

Our

teams

managed

to

balance

the

constraints

like

supply

chain

issues

and

cost

pressure,

whilst

winning

new

customers

and

living

our

value

proposition.

In

the

second

half year, fast adaptation

on

capacity

had

to

be

managed.

Always

there

was

a

focus

on

the

finding

of

new

opportunities

and

realizing

these

potentials

decisively.

We

are

happy

to

present

to

you

today

the

financial

results

2021,

which

we

deem

as

document

of

the

dedication

of

more

than

10,500

employees

in

an

impressive

manner.

Sales

pattern

2021

were

characterized

by

distinct

rebound

in

first

half

year,

which

had

its

beginning

in

the

latter

of

2020.

Organically,

we

grew

by

10.3%

or

CHF

178

million

throughout

all

segments

as

described.

Currency

impacts

were

relatively

small

and

balanced

out

based

on

a

favorable

currency

mix.

[indiscernible]

(00:20:46)

effects

were

limited

to

the

base

effect

from

the

acquisition

of

Truelove

&

Maclean

in

2020

and

the

acquisition

in

2021

of

Jevith

in

Denmark

and

GLR

Fasteners

on

the

West

Coast

of

the

USA.

Sales

dynamic

faded

as

supply

chain

issues

in

our

customer

base

and

the

pandemic

impacts

came

to

light.

The

flexible

and

fast

reaction

of

these

shifts

have

sheltered

our

performance.

Decisive

seizing

market

opportunities

and

winning

new

customers

have

further

underpinned

the

development.

Our

teams

managed

to

maintain

delivery

capacity

towards

the

end

markets

to

a

large

extent,

thus,

underpinning

our

reputation

for

being

a

reliable

partner.

The

local

for

local

strategy

helped

to

secure

supply

chains

of

our

suppliers

and

managing

logistics

in

a

difficult

environment.

Seasonal

patterns

in

2021

were

distinctively

different,

mainly

due

to

the

very

strong

base

effect

of

2020,

but

also

due

to

a

slightly

slower

demand

in

the

second

half

when

the

supply

chain

issues

started

to

show

in

our

customer

base.

Therefore,

growth

in

first

half

year

2021

versus

prior

year's

23.6%

second

half is

negative

0.5%.

The

sales

breakdown

by

end

market

shows

a

strong

demand

in

Europe

which

slightly

shifts

the

relative

[ph]



weight

(00:22:28)

to

the

other

geographical

areas.

From

an

end

market

view,

construction

was

important

contributor,

but

also

capital

equipment

and

general

industries

were

driving

factors.

Electronic

end

markets

slightly

improved

on

a

nominal

basis,

which

is

due

to

an

extraordinary

2020

characterized

by

the

strong

demand

from

the

work

from

home

change.

Medical

end markets,

as

described,

remained

a

bit

slower

and

during

the

period

[ph]



where

(00:23:03)

mainly

elective

surgeries

delayed,

so

that

impacted

[ph]



a

bit (00:23:07).

For 2021,

we

managed

to

report

a

compound

average

growth

rate

for

the

group

in

the

upper

part

of

our

mid-term

guidance

at

5.9%

CAGR

and a

normalized

EBITDA

of

21.3%.

We

reconfirm

our

statement

that

the

growth

through

the

cycle

holds

firm

and we

report

a

record

high

EBITDA

margin

above

the

targeted

bandwidth.

Capacity

utilization

paired

with

a

distinct

cost

discipline

gave

the

whole

group

a

boost

in

2021.

As

mentioned

before

and

also

discussed

during

the

first

half

year

presentation,

the

uneven

demand

was

a

big

[ph]



ask (00:23:57)

to

our

organization

in

the

second

half.

The

significant

pent-up

demand

of

the

pandemic

normalized

to

some

extent.

This

was

paired

with

the

expected

cost

increase

in

the

second

half.

The

seasonality,

which

we

have

reported

over

the

years

comparing

first

half

year,

second

half

year,

therefore

did

not

materialize.

Overall,

it

even

shifted. Shown

to

the

right

of

the

slide,

you

see

the

breakdown

into

first

half

year,

second

half

year.

Despite

all

we

mentioned

before,

the

challenges

in

the

second

half

year,

we

report

in

the

second

half

year

is still

very

attractive

levels

of

EBIT.

For

the full

year,

we

report

an

EBIT

of

CHF

301.7

million,

15.9%

or

an

EBITDA

of

CHF

407.1

million,

21.5%.

To

optimize

production

footprint,

division

Riveting

transferred

its

production

from

Nansha

to

Nantong.

Subsequently,

we

have

managed

to

sell

off

the

plant

and

the

respective

land

rights.

And

with

that,

we

record

a

book

gain

of CHF

3.1

million.

Details

are

given

to

the

upper

left

of

the

slide.

Rising

cost

levels

were

predominantly

coming

from

production

cost.

We're

talking

about

tooling

and

energy,

but

also

workforce,

transportation

and

other

selling

cost.

Raw

material

price

increases

and

higher

[ph]



factory (00:25:42)

costs

were

successfully

passed on

to

our

customers.

The

net

working

capital

side,

along

with

the

[ph]



livelier (00:25:50)

top

line,

inventory

turns

increased

and

the

net

working

capital

came

down

to

29.9%

of

net

sales

or

109

days.

Selectively,

inventory

levels

were

replenished

and

raw

materials

stock

was

built

up,

while

DIO

came

down

almost

four

days.

Further,

the

receivables

management

successfully

reduced

[ph]



debtors (00:26:19)

risk

and

collected

successfully.

Infrastructure

projects

at Stamm

in Hallau,

Switzerland

and

for

automotive

here

in

Heerbrugg, Hall

6,

are

making

good

progress

along

the

planned

levels.

Parallel

to

that,

constant

renewal

and

improvement

in

the

machinery

[ph]



part (00:26:45)

take

place.

The

project

of

migrating

the

ERP

system

from

the

existing

SAP

to

the

S/4HANA platform

is

underway

and

is

partially

recognized

as

CapEx.

With

investments

of CHF

121.4

million

or

6.4%

of

sales,

we

are

within

the

expected

CapEx

range.

However,

we

see

ourselves

at

the

beginning

of

a

new

investment

cycle,

having

launched

the

announced

expansion

in

Nantong,

which

will

start

in

2022,

parallel

with

investments

into

machinery

and

capacity

expansion

in

other

areas.

Our

free

cash

flow

is

at

CHF

203

million,

which

is

a

plus

of

5.75%,

reflecting

a

conversion

out

of EBITDA

of

50%,

which

is

within

the

targeted

bandwidth.

This

is,

of

course,

including

the

before mentioned

nominal

buildup

of

the

net

working

capital

and

including

the

cash

flows

from

our

sell-off

in

Nansha

[ph]



and/or (00:27:49)

the

dividend

payout.

As

a

result

of

that,

the

equity

base

has

further

been

strengthened

and

is

at

–

and

our

equity

is

at

78.9%.

Our

net

cash

position

increased

by CHF

135

million

to

a

level of

CHF

279

million.

Looking

into

returns

on

capital

employed,

we

see

the

increase

to

26.1%

on

the

back

of

the

strengthened

EBIT,

reflecting

the

utilization

of

our

infrastructures.

Calculating

on

a

flat

tax

rate

of

17.5%,

we

show

a

return

on

invested

capital

of

11.2%,

which

brings

us

into

the

targeted

range

of

returns.

Differentiation

between

return

on

invested

capital

and

capital

employed

can

be

broken

down

into

a

tax

effect

of

4.6

percentage

points

and

the

capital

impact

from

goodwill

of

10.3

percentage

points.

The

effective

tax

rate

came

slightly

up

to

17.8%

and

remains

within

the

targeted

range.

Underlying

factors

are

the

shift

in

taxable

results

from

higher

tax

– into

higher

tax

rate

countries, which is

counterbalanced

by

the

tax

effective

depreciations,

which

we

take

profit

from.

The

board of

directors

suggest

to

the

general

assembly

payout

of

a dividend

per

share

of

CHF

2.20,

which

is

a

payout

of

33.3%.

[ph]



Depending

of (00:29:41)

the

authorized

capital

of

1.6

million

shares,

the

maximal

cash-out

is

at

CHF

86

million

or

would

reflect

a

payout

of

34.7%.

Let

me

summarize

the

KPI

overview

with

the

statement

that

I

deem

this

as

a

demonstration

of

stability,

[ph]



consistent

(00:30:07)

growth

and

a

demonstration

– demonstrated

ability

to

adapt

the

capacity

to

the

current

needs.

The

group

is

generating

attractive

levels

of

cash

with

reliability

and

standing

on

a

very

solid

balance

sheet.

With

this,

I

thank

you

for

the

attention

and

the

interest

and

the

subsequent

questions

and

give

back

to

Jens

who

will

take

you

through

the

outlook

and

the

priorities.

[Jens Breu, Chief Executive Officer, SFS Group AG]

Thank

you,

Volker,

and

welcome

back

as

I

continue

with

outlook

2022.

The

guidance

for

fiscal

year

2022

reflects

the

expectation

for

SFS standalone

without

Hoffmann.

Performance

in

the

2022

financial

year

will

remain

characterized

by

major

uncertainties

as

a

result

of

geopolitical

developments

like

the

current

war

in

the

Ukraine,

trade

conflicts,

and

sustained

disruptions

in

supply

chains.

Uncertainties

in

the

mentioned

international

supply

chains,

which

should

gradually

subside

as

the

COVID-19

pandemic

abates,

are

expected

to

persist

until

early

2023.

In

this

environment,

ensuring

the

highest

possible

focus

on

customer

service

takes

top

priority.

Investments

in

the

selective

expansion

of

our

production

capacity

and

[ph]



boost (00:31:33) the

implementation

of

ambitious

growth

projects

will

continue.

Major

projects

during

the

current

financial

year

include

the

[ph]



staff (00:31:42)

to

expand

the

production

plant from

Nantong,

China

moving

into

the

new

production

hall

at

the

Heerbrugg

site,

Switzerland

and

the

first

larger

go-live

of

S/4HANA,

the

new

generation

ERP

system.

Expansion

of

our

global

production

platform

for

medical

device

application

remains

strategic

priority

as

well.

Besides,

we

expect

the

successful

closing

of

the

transaction

with

Hoffman

to

take

place

in

the

first

half

of

2022

once

the

usual

closing

conditions

have

been

met.

Looking

out

further,

SFS

expects

product

call-offs

to

be

partially

subdued

in

the

first

half

of

the

year,

but

for

this

to

pick

up

over

the

course

of

the

year.

Given

the

solid

project

pipeline,

we

are

confident

that

the

development

will

be

positive

in

all

end

markets.

Based

on

that,

SFS

expects

standalone

sales

growth

of

3%

to

6%

for

the

2022

financial

year

at

an

EBIT

margin

of

13%

to

16%.

The

outlook

will

be

updated

once

the

transaction

with

Hoffmann

has

been

closed.

On

the

operational

side,

we

continue

to

focus

on

specific

priorities

tailored

to

be

most

relevant

and

beneficial

to

reach

maximum

performance

for

the

end

markets

and

customers

we

serve.

These

are

strengthen

innovation,

especially

in

the

megatrends

of

demography,

digitization

and

autonomous

driving;

investments

in

future

growth

projects,

namely

in

engineered

components;

establish

international

presence

with

Hoffmann

in

the

segment

distribution

and

logistics;

ensure

reliable

supply

capabilities

despite

the

current

global

sourcing

challenges

and

disruptions;

continue

improving

the

customer

centricity

of

the

organization;

balance

production

capacity

with

demand,

while

ensuring

supply

capabilities

and

keeping

costs

under

control;

integrate

sustainable

acting

and

thinking

holistically

in

the

business

model

and

corporate

strategy,

and

protect

employee

health

and

safety.

With

that,

we

are approaching

the

end

of

the active

presentation

of

the

full-year

2021

results.

And

now,

[ph]



we're all (00:34:00)

available

for

your

questions.

First,

we

take

the

questions

from

participants

on

the

phone

before

we

take

the

questions

from

the

[indiscernible]



(00:34:11).

[Operator]

We

will

now

begin

the

question-and-answer

session.

[Operator Instructions]



Our

first

question from

the

telephone

comes

from

the

line

of

Joern

Iffert

with

UBS. Please

go

ahead.

[Joern Iffert, Analyst, UBS AG]

Good

morning,

and

many

thanks

for

taking

my

questions.

The

first

question

will

be,

please,

on

the

margins

in

Engineered

Components

in

the

second

half

2021

falling

to

15%,

I

think

this

was

the

weakest

margins

I

can

remember

for

the

second

half.

Is

there

any

special

in

this?

Is

there

a

lack

of

pricing

power

and

also

would

you

expect

that

for

the

full-year

2022,

you

can

keep

margins

relatively

flattish

year-over-year

in

Engineered

Components

around

17%?

The

second

question

would

be,

please,

on

your

average

selling

prices

in

Fastening

Systems

and

also

the

margins

which

doubled during

the

crisis. Is

this

something that

you

think,

okay,

look,

the

average

selling

prices

are

[ph]



now sustainable given

the

strong

construction

sector

(00:35:33)?

Would

you

expect

average

selling

price

to

decline

again

in the

next

two

to

three

years

[ph]



if (00:35:37)

margins

are

normalizing?

And

if

normalizing,

what

is

a

reasonable

level,

please,

in

Fastening

Systems?

And

the

last

question,

if

I

may,

I

mean,

the

cash

conversion

was

pretty

strong

in

the

last

two

years.

Is

the

free

cash

flow

to

sales

margin

of

around

[ph]



10%

something (00:35:51)

which

is

structural

now

and

also

considering

the

rising

CapEx

needs

over

the

next

two

years?

Thanks

a

lot.

[Jens Breu, Chief Executive Officer, SFS Group AG]

Okay.

Good

morning,

Joern.

Thank

you

for

your

questions.

And

the

first

question

about

the

EBIT

margin

in

Engineered

Components,

you

are

absolutely

right.

We

have

seen

an

increased

volatility

in

the

Engineered

Component

EBIT

margin

due

to

higher

and

lower

utilization,

and

there

is

different

divisions

having

a

different

impact

on

the

margin,

as

you

see

it

in

the

Engineered

Components.

Overall,

we

have

achieved

a

17%

margin,

which

we

deem

as

okay.

We

would

certainly

expect

[indiscernible]



(00:36:31)

throughout

the

year, a

good

utilization

of

the

capacity.

We

should

see

EBIT

margins

of 18%

and

slightly

higher.

Looking

out

into

the

year

for

2022,

we

certainly

expect

that

the

volatility

will

remain

first

half

year, probably

a

little

bit

lower

utilization;

second

half

year,

much

better

utilization.

I

would

say

we

expect

a

similar

EBIT

margin

in

the

year

2022

as

we

have

seen

it

in

the

year

2021,

plus/minus,

based

on

utilization

of

the

capacity

we

provide

to

the

end

markets.

Certainly,

uncertainties

out

there,

and

we

expect

a

fully

loaded

second

half

of

the

year

and

probably

a

little

bit

lighter

loaded

first

half

of

the

year.

Hopefully

then

in

2023,

we

will

see

a

more

even

utilization

of

Engineered

Components

capacity

throughout

the

year.

On

the

other

hand,

I

have

also

to

mention

that,

for

instance,

in

electronics,

we

had

the

best

year

ever

in

terms

of

utilization.

We

had

a

well-loaded

[ph]



plan (00:37:45)

situation

in

the

first

half

and

second

half

of

the

year.

So,

the

swing

down

in

the

second

half

of

the

year

2021

mainly

came

through

the

lack

of

order

calls

from

our

automotive

customers

and

in

some

areas,

also

from

our

industrial

customers,

and

in

medical,

also

due

to

orthopedics,

and

in

aerospace,

also

due

to

the

lack

of

demand

on

those

customers.

So,

you

see

plenty

of

upside

potential.

I

think

we've

managed

the

year

very,

very

well

last

year.

We

expect

2022

to

probably

fall

into

a

same

or

similar

pattern.

And

in

the

future,

we

expect

increased

utilization

of

capacity.

The

second

question

is

then

on

the

selling

price

sustainability

within

division

Construction

in

the

segment

Fastening

Systems.

Also

here,

we

have

seen

increased

price

increases

on

a

quarterly

level,

at

least,

and

we

also

would

expect

that

this

will

continue

in

the

year

2022.

Prices

will

–

depending

on

the

region,

on

the

country,

will

be

changed

or

increased

on

a

quarterly

basis,

at

least.

In

some

countries,

we

even

increased

prices

on

a

monthly

basis

due

to

increased

inflation

and

due

to

increased

cost

in

the

supply

chain.

So,

I

would

not

expect

that

we

will

see

a

slowdown

of

price

increases

in

Construction

in

the

year

2022,

maybe

even

2023,

we

will

see

increasing

pricing

momentum

due

to

supply

chain

issues,

as

we

observe

due

to

COVID,

but

also

now

we have

the

Ukrainian

conflict

and

the

tight

involvement

of

Russia,

we'll

probably

see

more

disruptions

in

the

supply

chains,

which

will

then

increase

prices

and

which

will

be

an

absolute

necessity

for

us

to

maintain

our

EBIT

margin,

that

we

follow

those

price

increases

and

push

them

through

to

customers,

which

is

one

of

the

top

priorities

we

have

within

the

organization.

So,

for

the

next

two

years,

it

will

remain

volatile

in

the

supply

chains,

cost

will

increase

and

we

will

certainly

do

the

maximum

to

forward

those

cost

increases

to

our

customers

and

they

will

forward

to

the

consumers.

With

that,

I

hand

over

to

Volker

for

the

third

question?

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

Your

question

regarding

the

free

cash

flow

to

sales,

10%

is

certainly,

kind

of

an

area

we

strive

for.

We

have

certainly

learned

a

lot

in

improving

the

inventory

management.

I

alluded

to

the

faster turns

in

inventory.

We

see

also

the

upside

of

normalizing

of

the

supply

chains

in

raw

materials,

which

certainly

would

help.

What

goes

in

contrary

to

that

is

the

choppy

demand

situation

from

the

large

customers,

these

call-offs,

they

are

very

difficult

to

plan

for.

That

could

be

a

counter

trend.

The

second

topic

that

we

see

is

that

we

have

a

very

close

and

good

working

receivables

management,

which

we further

[ph]



hone,

but

which

will

be

or (00:41:15)

come

under

pressure

once interest

rates should

pick up.

I mean,

we

will

see

what

that

is.

[ph]



Certainly,

the

biggest

factor

is

our

investment

side (00:41:29)

where

we

see

for

2022,

a

pickup

in

investment

activity.

Hall

6

is

going

to

be

finalized

[ph]



in

–

to

the

latter (00:41:38)

of

this

year,

and

machinery

will

be

invested.

In

parallel,

we

have

the

Nantong

platform

that

is

going

to

be

built

that

will

certainly

put

the

strain,

but

the

mentioned

10%,

I

think,

is

a

good

target

to

strive

for.

[Joern Iffert, Analyst, UBS AG]

Thanks

a

lot

for

this.

And

if

you

allow

me

a

follow-up

to

Jens'

answer

on

Fastening

Systems.

So,

with

[ph]



ever

selling (00:42:07)

prices

further

going

up

to

mitigate

rising

costs,

then

you're

looking

for

an

EBIT

margin

relatively

flattish

in

2022

versus

2021

in

Fastening

Systems?

[Jens Breu, Chief Executive Officer, SFS Group AG]

Certainly,

in

Fastening

Systems,

we

would

expect

a

more

flattish

development

of

the EBIT

margin.

[Joern Iffert, Analyst, UBS AG]

Thanks

a

lot.

[Operator]

The

next

question comes

from

the

line

of

Andreas

Müller

with

ZKB.

Please

go

ahead.

[Andreas Müller, Analyst, Zürcher Kantonalbank]

Yes.

Good

morning, gentlemen.

Thanks

for

taking

my

questions.

I've

got

also

questions

on

the

raw

material

price

increase,

which

you

expect

is

going

to

continue

in

the

Construction

sector.

You

mentioned

already

that

you

can

pass

it

on

pretty

well.

But

can

you

talk

about

the

auto

segments

or

end

markets,

how

the

ability

to

pass

it

on

this

is

here?

That's

the

first

question.

[Jens Breu, Chief Executive Officer, SFS Group AG]

Good

question,

yeah,

Mr.

Müller.

And

overall,

we

see

this

as

the

top

priority

in

the

organization

and

already

made

it

as

a

top

priority

also

in

the

previous

year.

We

see in

the

Fastening

Systems

and

Distribution

&

Logistics

segment

where

we

have

usually

thousands

of

customers,

usually

with

smaller

purchasing

power

than,

for

instance,

in

Engineered

Components.

We

see

there

the

need

to

ongoingly

increase

prices

because

also

due

to

the

supply

chains

and

the

nature

of

products,

we

get

more

frequent

price

increases.

So,

in

Fastening

Systems

and

Distribution &

Logistics,

we

usually

see

three

to

five

price

increases

throughout

the

year.

[ph]

Certainly, it's

an

effort.

Certainly,

it will (00:43:56)

keep

people

busy

to

do

so,

but

I

think

there's

also

a

broad

acceptance

within

those

customer

and

end

market

groups

that

this

is

absolutely

necessary

to

secure.

Also

that

the

supplies,

and

especially,

in

the

Construction

division,

for

instance,

we

see

that

half

of

the

growth

is

achieved

through

new

customers

because

they

do

not

get

the

products,

they

do

not

have

the

availability

within

their

existing

sources.

So

there's

a

high

willingness

there

also

to

pay

the

increased

prices,

and

with

that

or

through

that,

secure

the

materials

they

need

to

have.

In

the

Engineered

Components

segment,

it's

a

little

bit

different.

There,

the

price

is

usually

increased

maybe

two

times

a

year.

That's

mainly

driven

by

the

raw

material

supply

side,

which

also

has

then

usually

two,

sometimes

maybe

three

price

rounds,

price

increase

rounds.

There's

a

higher

visibility

out

because

of

the

raw

material

–

[ph]

or (00:45:02) the

nature

of

the

raw

material

which

are

secured

there.

So,

for

instance,

today,

we

secure

raw

materials

for

the

year

2023

and

already

make

allocations

with

suppliers

and

tell

them

what

we

expect

for

2024.

So,

there's

a

much

longer

buying cycle

and

a

much

longer

visibility,

higher

visibility

on

that

side.

So,

due

to

that,

we

see

less

increases,

maybe

with

stronger

customers,

larger

customers,

maybe

the

price

discussions

are

more

intensive.

On

the

other

hand,

we

have

proven

over

time

that

we

also

are

able

to

increase

prices

there

as

long

as

we

don't

see

any

swift

changes

overnight,

like

currency

fluctuations

up

and

down

by

5%

to

10%

we

are

usually

able

to

maintain

the

margins

because

we

start

the

discussions

early.

So,

I

think,

overall,

we

are

optimistic

about

the

capability

of

pushing

through

prices,

but

we

are

certainly

very

careful

in

terms

when

we

see

swift

changes

overnight

fluctuations

of

currencies.

Then

we

usually

would

see

an

immediate

impact,

which

usually

then

takes

six,

sometimes

nine

months

to

cover

for

and

to

adjust

again

for.

[Andreas Müller, Analyst, Zürcher Kantonalbank]

Okay.

Thanks.

[Jens Breu, Chief Executive Officer, SFS Group AG]

I

hope

I

was

able

to

answer

your

question.

[Andreas Müller, Analyst, Zürcher Kantonalbank]

Yes.

I

have

another

one

if

I

may

about...

[Jens Breu, Chief Executive Officer, SFS Group AG]

Sure.

[Andreas Müller, Analyst, Zürcher Kantonalbank]

...it

seems

that

you're

a

bit

more

relaxed

about –

in

the

second

half

about

the

supply

chains

and

all

the

issues,

strains

in

the

supply

chain.

And

what

is

that

based

that

it's

going

to

be

better

going

forward

relative

to

the

first

half?

[Jens Breu, Chief Executive Officer, SFS Group AG]

It's

mainly

based

on

the

discussions

we

have

with

our

customers.

We

certainly

see

that

material

changes

have

been

implemented

in

the

supply

chains.

We

see

that

capacity

has

also

been

build

up.

And

I

think

that

the

lessons

learned

cycle

we

had

to

all

go

through

happened.

So

we

would

expect

that the

necessary

precautions

are

put

into

place.

And

due

to

that

in

the

second

half,

we

will

see

better

availability,

especially

in the

semiconductor

side

where

– which

was

kind

of

the

halting

or

the

stopping

or

the

braking

costs

for

lower

utilization

of

capacities

in

the

second

half

of

last

year

because

our

customers

did

not

have

the

semiconductors

they

needed

to

keep

also

their

products

in

the

market.

So,

overall,

I

think

the

supply

chain

learned

a

lot,

adjusted a

lot,

became

more

flexible,

also

increased

the

capacity

bandwidth

a

step

up.

So,

that's certainly

a

plus.

On

the

other

side,

as

we

see

with

the

Ukrainian

crisis

currently

that

there

will

be

also

some

indirect

movements

in

the

supply

chains

probably

in

the

first

half

of

this

year,

which

also

need

to

be

absorbed.

But

overall,

we

see

also

that

the

closer

you

come

to

the

OEMs,

the

more

flexible

the

capacities

are.

So

we

also

would

expect

that

a

catch-up

of

pent-up

demand

will

be,

again,

happening

in

the

second

half

of

this

year

which would

see

good

utilization,

again,

probably

similar

to

what

we

have

seen

in

the

first

half

of

2021

overall

in

the

industry.

[Andreas Müller, Analyst, Zürcher Kantonalbank]

Okay.

Thank

you

on

that.

And

then

really

on

this

sad

conflict,

you

just

mentioned

the

indirect

kind

of

impact.

I

don't

know

if

you

addressed

that

at

the

beginning,

but

do

you

have

employees

in

these

conflicting

countries?

And

also

what's

the

exposure –

sales

exposure

directly

to,

say,

Russia,

Belarus,

Ukraine.

Do

you

have

assets

over

there

as

well?

That's

my

question.

[Jens Breu, Chief Executive Officer, SFS Group AG]

Very

good

question.

No,

we

have

not

addressed

it

yet.

In

the

three

countries,

as

you

mentioned,

Belarus,

Ukraine,

Russia,

we

do

sales

of

slightly

below CHF

10

million.

We

do

not

have

employees

on

the

ground

in

those

countries.

We

do

not

have

a

strong

exposure

in

Eastern

Europe

anyhow.

So,

from

that

point

of

view,

we

have

a

limited

impact

certainly.

Indirectly,

we'll

see

a

slowdown.

We

may

have

customers

which

do

business

in

those

regions

there,

and

they

will

certainly

also

be

impacted.

So,

on

some

customer,

some

segments,

we'll

see

probably

a

weaker

demand

pattern

in

the

first

half

of

the

year

and

as

we

expect

all

the

Ukrainian

war

probably

to

last

a

while

from

today's

perspective.

Also,

second

half

of

the

year,

there

will

be

an

impact

on

the

demand.

On

the

other

hand,

we

also

have

heard

and

seen

that

the

rest

of

world

is

reacting. We

see

material

initiatives

to

build

up

and

improve

the

defense

side

of

the

countries

which

then,

on

the

secondary

side,

not

on

the

primary

side,

on

the

secondary

side,

will

then

also

generate

additional

needs

and

demands,

especially

with

the

segment

Distribution

&

Logistics

and

probably

Fastening

Systems

and

also

in

some

Industrial

customers

because

infrastructure

improvements

will

need

to

happen.

And

also

the

need

for

production

and

ancillary

products

will

be

needed

to

improve

and

increase

the

output

off

of

those

goods,

which

will

be

more

in

demand

when

the

Western

world

increases

their

defense

infrastructure

and

capabilities

overall.

So,

luckily,

nobody

on

our

side

impacted.

We

expect

some

secondary

impact,

some

downs,

some

ups.

Overall,

this

is

the

current

state

of

view.

[Andreas Müller, Analyst, Zürcher Kantonalbank]

Okay.

Thank

you

very much.

[Operator]

The

next

question

comes

from

the

line

of

Tobias

Fahrenholz

with

Stifel.

Please

go

ahead.

[Tobias Fahrenholz, Analyst, Stifel Schweiz AG]

Yes.

Hello,

gentlemen.

Hi.

Thanks

for

taking

my

questions.

First

one

on

the

H1

outlook.

Trying

to

understand

your

H1

cautions

a

little

bit,

to

which

extent

this

is

driven

by

just

the

high

basis,

or

do

you

really

see

here

an

ongoing

volatile

and

challenging

environment

at

the

moment?

Maybe

to

clarify

this,

I

mean,

maybe

you can

say

something

[indiscernible]



(00:51:58)

2022

was

in

reality,

so

did

you

see

some

growth

and

remained

margin

flattish

or

did

they

even

drop?

[Jens Breu, Chief Executive Officer, SFS Group AG]

Hi. Good

morning,

Tobias.

We

see

for

the

first

half

of

2022,

we

see

both

effects.

As

you

just

have

mentioned,

we

see

a

strong

base

which

we

run

against

due

to

excellent

utilization

in

the

previous

year.

Currently,

some

of

the

supply

chains

on

the

customer

side

have

improved

compared

to

the

second

half

of

last

year,

but

probably

are

still

not

as

affluent

as

they

were

in

the

first

half

of

last

year,

so

we

are

running

against

the

strong

base.

That's

certainly

true

and we

will

–

we

expect

that

in

the

second

–

probably,

the

second

issue

to

be

kept

in

mind

is

the

volatility

overall

in

the

supply

chains.

So,

it's

not

just

the

base,

it's

also –

there's

still

existing

volatility. We

see

patterns

of

strong

demand

and

we

see

patterns

of

weaker

demand

as

customers

getting

their

supply.

And

as

we

just

mentioned

in

the

current

environment

of

the

Ukrainian

conflict,

we

don't

– we

will

probably

see

more

challenging

situations

than

most

situations

where

problems

have

been

solved.

So

overall,

first

half

of the

year,

challenging,

second

half

of

the

year,

we

expect

a

smoother

right.

[Tobias Fahrenholz, Analyst, Stifel Schweiz AG]

Okay.

And

on

the

2022 growth

outlook,

you're

giving

us

the

typical

targets,

including

your

3%

to

6%

sales growth.

Normally,

there's

kind

of

a

1%

to

2%

M&A

part

in

there.

Is

this

still

the

case

for

the

running

year?

And

if

you

split

it

up,

especially

the

organic

growth

targets

between

volumes

and

prices,

which

should

be

both

in

there,

how's

the

split

looking

there?

So what's

the

–

at

the

end,

what's

the

pure

volume

target

for

the

current

year?

[Jens Breu, Chief Executive Officer, SFS Group AG]

I

think

that

what

we

can

do

is

look

a

little

bit

back

and

tell

you

what

we

have

experienced

in

the

past

and

you

may

be

able

to

apply

that

to

the

future.

Overall,

we

are

not

in

a

position

to

be

more

precise

about

the

year

because

there're many

uncertainties

out

there.

But

I

think

overall,

we

can

say

that

in

past

times,

we

were

able

to

grow

a

little

bit

more

than

3%

organically

and

the

difference

between

the

3%

to

the

6%

where

we

stay

right

now

has

been

inorganically.

But

in

those

years,

we

did

not

see

a

lot

of

price

increases.

So

maybe

this

year,

if

we

maybe

don't

see

an

additional

M&A

activity,

we

see

between

the

organic

normal

portion

and

the

gap

to

the

3%

to

6%

is

probably

price

increases.

Last

year,

growth

was

driven

by

two

thirds

volume

and

one-third

prices.

So,

we

may

or

you

may

apply

a

similar

model

to

the

year

2022.

That

on

the

expectation

side

for

next

year.

[Tobias Fahrenholz, Analyst, Stifel Schweiz AG]

Okay.

Thank

you.

[Operator]

The

next

question comes

from

the

line

of

Remo

Rosenau

at

Helvetische

Bank.

Please

go

ahead.

[Remo Rosenau, Analyst, Helvetische Bank AG]

Yes.

Thank

you.

On

the

price

increase

questions,

I

mean,

in

an

environment

where

input

costs

go

up,

obviously

you

always

have

a

time

lag

effect.

So

you

pass

on

these

high

input

costs

to your

customers,

but

there

might

be

or

there

is

more

or

less

a

larger

or

smaller

time

lag.

So,

could

you

define

how

long

it

takes

in

your

three

divisions

in

order

to

compensate

the

–

these

input

cost

increases?

[Jens Breu, Chief Executive Officer, SFS Group AG]

Yeah.

Good

question,

and

as

I

alluded

a

little

bit

before,

we

see

two

types

of

price

increases.

We

see

the

ones

with

longer

visibility.

And

this

is

what

we

have

seen

last

year

and

the

year

before.

So

we

had

pretty

good

indication

what

the

wrongful

prices

will

be

doing,

what

overall

energy

prices

will

be

doing

to

– throughout

the

year

and

build

it

into

the

model

and

we're

able

to

announce

price

increases

pretty

much

tailored

to

when

we

see

actually

the

goods

coming

into

house

and

into

inventory

overall.

So,

we

were

able

due

to

good

visibility

to

match

that

pretty

well,

increase

on

the

sales

side

pricing-wise,

and

the

incoming

goods

with

a

higher

pricing

point.

Looking

out

into

the

year

2022,

we

still

believe

that

this

will

be

the

case,

so

that

there

will

be

no

time

lag

or

time

delay.

On

the

other

hand,

if

we

see

shifts

in

currencies

overnight,

as

I

mentioned

before,

then

it

will

take

us

six

to

nine

months

to

restore

or

recover

the

margin

again

or

normalize

the

margins

again

to

the

previous

level

if

an

overnight

shift

is

happening

into

one

–

into

the

downside

direction

for

the

EBIT

margin

overall.

So,

I

think

we

are

prepared

for

the

year,

but

once

again,

I

think

we

all

look

forward

and

hope

that

we'll

not

see

a

major

shift

in

currency.

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

And

probably

for

your...

[Remo Rosenau, Analyst, Helvetische Bank AG]

Okay.

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

...model

point

of

view

factoring

that

we

see

roughly

15%

to

17%

of

raw

material

price

in

our

bill

of

material,

and

that

a

large

portion

of

this

can

be

planned

due

to

the

specialized

raw

material

that

we

need

can

be

planned

ahead

quite

well

and

is

contracted

ahead

quite

well.

So,

we

have

not

only

a

short

time

lag,

as

Jens

explained,

we

have

also

the

ability

to

plan

ahead

what

our

cost

levels

are

looking.

[Remo Rosenau, Analyst, Helvetische Bank AG]

Okay.

Great.

Thank

you.

Then

another

one.

I

mean,

the

whole

world

talks

only

about

higher

prices,

higher

prices,

higher

prices.

Are

there

any

spots

where

there

are

no

price

increases?

I

mean,

for

instance,

I

heard

that

steel

has

become

cheaper

specifically

in

the

US,

not

so

much

in

Europe.

Things

like

that

always

at

least

didn't

increase

that

much.

[Jens Breu, Chief Executive Officer, SFS Group AG]

We

don't

see – in

our

materials

and

goods

which

we

secure

and

buy,

we

have

not

seen

a

leveling

off

of

pricing

levels.

Maybe

we

had

selective

suppliers,

which

had

a

short-term

gap

because

maybe

some

I'd

say

automotive

customers

did

not

call

off

products,

then

they

maybe

came

to

us

and

offered

us

products

for

construction

market or

wired

to

–

for

construction

market

to

be

used,

but

that

will

be

a

very

spotty

development.

This

would

not

be

something

which

would

subside

in

a

P&L

to

a

large

degree,

that

may

be

a

small

tactical

gain

here

and

there

where

we

see

a

sportiness due to

a

weakness

in

a

certain

end

market

and

due to

overcapacity

of

a

supplier

who

is

very

much

exposed

to

a

specific

end

market.

So

overall,

not

we

see

on

the

labor

side,

on

the

energy

side,

on

the

raw

material

side,

we

see

price

increases

happening

on

a

daily

basis.

[Remo Rosenau, Analyst, Helvetische Bank AG]

Okay.

Then

my

last

question.

If

the

whole

situation

would

sometimes

change

again,

difficult

to

imagine

at

the

moment,

but

things

change

and

you

have

seen

different

cycles

in

the

past.

So,

if

raw

materials,

go

down,

what

happens

at

your

side?

I

mean,

do

you

proactively

go

back

to

your

customers

and

say,

okay,

now,

we

can

reduce

our

prices

or

do

your

customers

then

need

to

come

up

to

you

or

their

mechanisms

or

how

is

this

[indiscernible]



(01:01:01)?

[Jens Breu, Chief Executive Officer, SFS Group AG]

I

think

usually,

yes.

Customers

–

certainly

the

larger

customers,

which

are

more

organized

and

have

a

sizable

purchasing

departments,

they

monitor

that

very

specifically.

And

they

come

instantly

back

to

us

and

will tell

us

about

their

view

and

demands

in

our

direction,

so.

And

there

may

be

smaller

customers

which

maybe

do

not

have

such

a

concern

on

the

raw

material

they

buy

in

because

it's

a

smaller

portion

of

their

value-added,

which

they

have

in-house.

So,

it

varies

a

lot

between

customer

groups.

Overall,

I

think

we

also

need

to

take

a

look

and

keep

in

mind

what

happens

around

it.

If,

let's

say,

on

the

raw

material

prices

start

to

stagnate

or

slightly

start

to

reduce

but

cost

of

labor

and

cost

of

energy is

still

going

up,

then

there

will

not be

much

of

a

shift

in

pricing.

It

may

be

kept

stable

or

maybe

only

slightly

increase,

or

maybe

only

slightly

decrease.

I

think,

overall

what

we

can

say

is,

there's

no

falling

off

the

cliff.

We

have

never

experienced

before

in

a

cycle

that

[ph]



all in

a sudden, raw

material (01:02:17)

prices

drop

by

20%

or

30%.

And

due

to

that,

we

see

an

immediate

demand

from

customers

to

reduce

prices.

This

only

happens

in

currency

shifts

that

maybe

overnight

the

Swiss

franc

appreciates

10% or

15%

then

customers

would

comment

and

request

an

immediate

adjustment.

But

on

the

raw

material

side,

usually

things

happen

in

a

slower

pace.

Usually

developments

are

seen

in

advance

and

so

usually

suppliers,

the

supply

chain

customers

are aware

of

it

and

start

building

it

into

their

models.

And

there's

usually

visibility,

I

say,

between

three

to

nine

months

before

it

happened.

So,

there

will

be

a

soft

landing

if

the

change

comes

from

the

supply

[ph]



raw material (01:03:08)

side,

there

will

be

a

little

bit

harder

landing

if

the

change

to

fluctuation

comes

from

the

currency

side.

[Remo Rosenau, Analyst, Helvetische Bank AG]

Okay.

Great.

Very

clear.

Thank

you

very

much.

[Operator Instructions]

[Operator]

The

next

question

comes

from

the

phone

and

it's

from

Alessandro

Foletti

with

Octavian.

Please

go

ahead.

[Alessandro Foletti, Analyst, Octavian AG]

Yes.

Good

morning.

I

just

have

a

couple

small

follow-ups.

On

the

wording

in

your

outlook,

yes,

you

went

through

all

the

divisions

and

then

you

gave

some

sort

of

outlook

for

2022.

And

like,

for

example,

for

Construction

and

Riveting,

you

said

we

expect

organic

growth.

And

then

for

a

couple

of

others,

including

Medical,

Electronics,

et cetera,

you

said

we

expect

positive

development.

What's

the

meaning?

Is

there

a

difference

in

the

meaning

of

these

two

wordings?

[Jens Breu, Chief Executive Officer, SFS Group AG]

Good

morning,

Alessandro.

No,

there's

no

difference

in

the

meaning.

We

trust,

right,

not

to

be

too

boring

as

an

industrial

organization

and

use

always

the

same

term,

[ph]



but

you

were (01:04:27)

pretty

specific

in

picking

that

up.

Yeah.

[Alessandro Foletti, Analyst, Octavian AG]

All

right.

Good.

Then,

on

the

depreciation,

it

went

up.

If

I

calculate

correctly,

depreciation

and

amortization

together

like

[ph]



CHF 6

million

is

about

6%

(01:04:43)

less

than

sales.

[indiscernible]



(01:04:45)

anything

special

[indiscernible]



(01:04:50)

like

the

new

level

and

like

in

percentage

of

sales,

it

will

continue

that

direction?

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

It's

reflecting

the

normal

investment

cycle,

there

is

no

particular

extraordinary

effects

in

that.

[Alessandro Foletti, Analyst, Octavian AG]

All

right.

[indiscernible]

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

(01:05:06)

[Alessandro Foletti, Analyst, Octavian AG]

Thank

you.

And

then,

on

your

CapEx

plan.

Yeah. Perfect.

Thank

you

very

much.

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

As

we

said,

we

are

looking

into

a

CapEx plan

that

is

slightly

elevated,

that

goes

more

to

the

tune

of

the

8%.

If

we're

looking

out

into

next

year

just

because

of

the

parallel

ramping-up

of

[indiscernible]



(01:05:28)

and

ramping up

in

China,

Nantong.

So

we

see

ourselves

at

the

beginning

of

a

new

investment

cycle

like

we've

seen

it

probably

in

the

last

time

when

we

had

a

larger

platform

building.

This

time

probably

not

as

pronounced

[indiscernible]



(01:05:49).

[Alessandro Foletti, Analyst, Octavian AG]

Right.

But

probably

2022

and

2023,

up

to

8%

of

sales

and then

back

down

or

how

should

I...?

[Alessandro Foletti, Analyst, Octavian AG]

Yeah.

Yeah,

that

could

be

a

proxy.

[Alessandro Foletti, Analyst, Octavian AG]

All

right.

And

then,

my

last

one,

I

think

yesterday

or

the

day

before,

BMW

announced

the

closure

of

the

factories

in

Munich,

because

of

the

lack

of

cables.

So,

I

imagine

at

some

point

there

will

be

some

disruptions

there

as

well.

I

wonder

if

this

type

of

situation

is

already

including

in

the

statements

you

made

today

or

if

this

is

new?

[Jens Breu, Chief Executive Officer, SFS Group AG]

I

think

the

volatility

in

the

first

half

of

the

year

as

we

build

into

our

plan

can

be

manifold.

We

do

not

expect

that

the

first

half

of

the year

will

be

smooth.

We

also

expect

continued

shutdowns

on

the

OEM

side

and

we

believe,

in

our

guidance,

we

believe

that

there's

ample

capacity

on

the

OEM

and

tier

side

to

make

up

for

any

closings

in

the

first

half

of

the

year

and

the

second

half

of

the

year.

Pretty

similar

to

what

we

have

seen

last

year,

first

half,

loaded;

second

half,

lighter.

We

expect

this

year,

first

half,

lighter;

second

half,

loaded.

[Alessandro Foletti, Analyst, Octavian AG]

Okay.

Thank

you.

[Operator]

There

are

no

more

questions

on

the

telephone

at

the

moment.

[Jens Breu, Chief Executive Officer, SFS Group AG]

So,

since

we

have

no

questions,

we

maybe

go

over

and

ask

–

answer

the

questions

in

the

chat.

So,

first

question

we

have

from

[indiscernible]



(01:07:40).

The

question

is,

what

do

you

expect

for

labor

cost

increases

in

the

different

countries?

If

we

look

into

what

our

projections

are,

then

we

go

into

an

overall

labor

cost

increase,

which

is

very

patchy

and

regionally

not

only

country-wise,

but

even

within

countries

regionally

different.

If

we

look

overall,

we

see

a

labor

cost

increase

of

3.5%,

which –

given

the

time

lag

that

this

is

cranking

in

for

next

year,

will

come

down

to

some

2%

plus

on

our

P&L.

Then

the

next

question

also

from

[indiscernible]



(01:08:35)

is,

can

you

please

also

give

some

flavor

regarding

the

US

business?

Is

it

also

very

difficult

to

find

good

people

and

the

salary

costs

are

strongly

increasing?

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

Yeah.

I

mean,

that

neatly

goes

into

the

first

part

of

my

answer.

Yes,

we

see

that.

We

see

that

regionally

within

the

US

differently.

Certainly,

the

market

there

is

hotter,

but

we

still

are

able

and

managed

to

find

the

talents

we

need

to

keep

our

organization

growing

and

on

the

market.

[Jens Breu, Chief Executive Officer, SFS Group AG]

And

third

question,

same

source.

What

is

your

observation

regarding

the

out

of

China

production

trend

for certain products?

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

No.

I

mean,

that

is

the

–

we

mentioned

it

quite

a

couple

of

times,

the

local for

local

strategy

allows

ourselves

to

have

a

production

in

China

for

Chinese

direct

customers,

which

helped

a

lot.

And

certainly

the

production

out

of

China,

logistics

we

mentioned

it

is

a

constant

topic.

That

includes

customs and

logistics

as

such,

certainly

not

a

more

–

an

easier

market

at

the

moment.

[Jens Breu, Chief Executive Officer, SFS Group AG]

Overall,

when

we

take

a

look

at

our

customers,

we

see

as

Volker

said the

local for

local

is

becoming

more

vital.

So,

Chinese

OEMs

on

the

car

side,

they

localize

even

more

heavily

than

what

they

have

done

before

which

falls

right

into

the

direction

as

we

said,

local for local.

We

have

a

local

footprint

[ph]



due

to

that

are (01:10:30)

better

capable

in

receiving

and

getting

new

products,

which

we

can

produce

in

Europe

for

Europe,

China

for

China,

North

America

for

North

America

overall.

In

automotive

side,

this

is

helping

us

very

strongly

to

further

expand

our

footprint

in

China

with

other

customer

groups

on

the

electronic

side.

For

instance,

we

see

customers

trying

to

break

out

left

and

right

with

initiatives

to

maybe

try

to

establish

on

a

lower

basis,

on

a

much

lower

basis

a

value-added

activities

outside

of

China,

but

usually

after

two,

sometimes

three

years,

they

slow

those

initiatives

down

[indiscernible]



(01:11:15)

completely,

because

the

efficiencies

as

observed

in

China

cannot

be

met

and

cannot

be

copied

and

pasted

to

other

regions

due

to

strong

knowledge

and

scale

effects

in

China.

Then

we have

the

next

question

from

[ph]



Thorsten

Zoucher (01:11:35),

but

how

about

Hoffmann's

exposure

to

Russia,

Ukraine,

whether

we

can

give

there

an

update?

We

cannot

give

you

an

update

about

the

Hoffmann

in

detail

about

their

exposure.

This

will

need

to

wait

until

we

have

the

closing

and

then,

we'll

be

able

to

give

you

a

more

detailed

update

on

the

exposure

of

Hoffmann

in

Eastern

Europe

and

the

impact

of

the

Ukrainian

crisis

on

the

development

there.

[Jens Breu, Chief Executive Officer, SFS Group AG]

The next

question

comes

from

[ph]



Christian

Obst (01:12:09).

Can

you

give

us

an

update

on

the

Hoffmann

takeover

timeline

discussion

with

[ph]



cartel

(01:12:12) authorities

expected

2022

impact

on

top

and

bottom

line?

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

I

certainly

can

give

you

an

update

on

the

timeline.

The

discussions

with

the

[ph]



cartel (01:12:27)

authorities

are

working

very

well.

We

are

on

time

and

we

got

questions

back.

We

got

first

green

light

already.

So,

when

we

say

first

half

year,

we

are

firm

and

we

have

a

very

good

level of discussion

with

the

sellers on

the

process

and

are

proceeding

as

planned. And

as

said

before,

expectations

for

2022

and

guidance,

we

will

update

that

as

soon as

closing

happens,

as

we

have

issues

talking

about

Hoffmann

outlook

before

that

date.

[Jens Breu, Chief Executive Officer, SFS Group AG]

Then

there's

another

question

from

[indiscernible]



(01:13:14).

How

many

people

are

involved

in

the

integration

of

Hoffmann which

regards

top

management

as

well

as

middle

management?

Did

you

already

had

the

first

get

together

meetings

of

the

top

management?

Here,

we

can

update

that

we

have,

I

would

say,

very

high

level

discussions

at

this

point

in

time,

where

we

define

the

work

stream

topics

and

the

work

streams,

which

all

work

on

the

integration

side.

We

believe

those

will

be

around

8

to

10

key

topics,

which

we'll

focus

on

the

top

and

some

mid-level

management

side.

We

do

not

expect

that

this

will

be

a

broader

topic

for

all

of

the

organization

to

be

involved

into

the

integration.

We

expected

the

top

management

topic

8

to

10

key

initiatives,

which

we

will

start

in

the

year

2022

and

which

will

continue

into

the

year

2024,

which

will

keep

us

busy

there.

Besides

that,

on

the

lower

level,

on

the

tactical

daily

level

activities,

we

do

not

expect

much

of

a

change.

We

already

worked

together

since

we

are

their

partner

in

Switzerland

and

we

expect

this

cooperation

to

continue

as

lean

and

as

efficient

as

we

have

done

it

throughout

the

previous

years.

So,

meaning

there

will

still

be

bandwidth

of

Volker,

myself, the

Hoffmann management

team, the

SFS management

team to

focus

on

the

existing

business.

And

this

will

be

an

additional

project

which

we'll

be

able

to

manage

with

the

resources

and

bandwidth

we

have

already.

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

Besides

that,

it's

important

to

note

that

as

long

as

we

do

not have

the

official

[ph]



go

from

the cartel

(01:15:05)

authorities,

we

are

not

in

a

position

to

go

any

deeper

in

management

discussions

and/or

gatherings,

et cetera,

alike.

[Jens Breu, Chief Executive Officer, SFS Group AG]

So,

since

there

are

no more

questions

on

the

chat

and

on

the

phone,

maybe

we

go

to

the

next

slide

before

we

close

and

give

you

an

update

on

what's

coming

next.

We

see

the

general

assembly,

annual

general

assembly

on

April

27,

which

will

be

without

physical

presence.

Then, we

will

publish

the

Sustainability

Report

towards

the

end

of

May.

After

closing,

we'll

announce

a

specific

date

for

an

Investor

Day

in

Nuremberg

where

we

focus

on

Hoffmann.

Expect

this

towards

second

quarter

or

most

likely

happening

in

June.

Then,

due

to

the

expected

closing

and

integration

of

Hoffmann,

we'll

communicate

our

first

half

2022

results

in

August

this

year,

August

26.

And

then,

for

all

the

other

SFS

divisions,

we

plan

to

do

an

SFS

Investor

Day

again

in

most

likely

Q3,

maybe

in

Q4.

We

also

will

announce

the

date.

With

that,

we

close

the

information

on

the

full year

2021

results.

We

thank

you

for

your

attention.

Wish

you

all

the

best,

good

health,

and

talk

to

you

soon.

Bye-bye.

[Volker Bernhard Dostmann, Chief Financial Officer, SFS Group AG]

Thank you. Bye-bye.