Stein am Rhein/Kloten, 30 October 2015: The Phoenix Mecano Group, a leading player in the field of enclosures and industrial components, saw its positive sales trend in 2015 continue in the third quarter. Sales, incoming orders and operating result were all up on the same quarter last year. The result of the period improved significantly.

The economic climate was mixed. The generally cautious mood of customers in the capital goods industry, especially the energy sector, is still in evidence, particularly in Europe and the Far East. However, this continues to be offset by a positive market environment for electrically adjustable seating and reclining furniture in Asia and the USA, from which the Mechanical Components division has benefited.

Consolidated gross sales in the quarter under review rose by 12% year-on-year to €139.4 million, of which 0.9% was attributable to changes in the scope of consolidation. Excluding positive currency effects, the increase would have been 7.2%. Incoming orders in the third quarter totalled €130.5 million, up 5.1% compared with the previous year. The book-to-bill ratio stood at 93.6%, while remaining at 102.1% for the year as a whole. However, the exceptional momentum in incoming orders in the first half of 2015, driven partly by extraordinary factors, was not sustained.

At €16.9 million, operating cash flow exceeded the prior-year value by 18.2%. The operating result increased by a disproportionately high 24.7% to €10.5 million, corresponding to an operating margin of 7.5%, as against 6.8% the previous year.

The result of the period improved by a similar margin, rising 23.6% to €7.5 million from €6.1 million the previous year.

Enclosures consolidated, dynamic growth in Mechanical Components, ELCOM/EMS turnaround to be accelerated

The operating margin of the Enclosures division, while lower than the comparable prior-period figure (14.1% compared with 15.3% in 2014), significantly outperformed H1 2015 (12.3%). Given the challenging environment in the global capital goods industry and in energy – a key sector for the enclosures market – we consider this a positive performance. The environment for this division remains challenging, but we are tackling these challenges head-on with an extensive package of measures in product development, marketing and logistics, spanning a 3-5-year period. These measures are already being implemented. However, we expect the adverse economic conditions for the division to continue in the short term.

The Mechanical Components division saw its growth trend continue. As the global market leader in drive systems and control electronics for comfort and reclining furniture and the world no. 2 in drive systems for nursing and hospital beds, our strategy of actively shaping this positive trend through a wide range of innovations is yielding definite results. The operating margin rose significantly year-on-year, from 6.2% to 9.4%, with encouraging top-line growth of around 20%. We expect this growth trend to continue, although the exceptionally strong momentum seen this year is unlikely to persist in the long term.

In the ELCOM/EMS division, a raft of initiatives and projects are being implemented in 2015 to achieve a turnaround in EBIT. Despite encouraging sales growth of 9.6%, new product launches must be further accelerated and sales structures expanded if we are to meet our earnings targets. This entails high initial costs and accounts for the losses recorded in the current year. While the operating margin improved from - 5.8% in H1 2015 to -3.4% in the third quarter, there is still some way to go to achieve a break-even in 2016 operating result. We will therefore further intensify our efforts in the coming months and keep all options open for meeting our earnings targets.

Outlook

In the course of 2015, conditions in the machinery, industrial electronics and other capital goods markets have become increasingly challenging worldwide. While in Europe a reluctance to invest has prevailed for some years, with only consumption – fuelled by low interest rates and generous wage agreements, combined with low inflation – preventing a decline into recession, conditions in the emerging economies have been gradually deteriorating as well. The Chinese growth engine is faltering, while hopes of both Brazil and Russia are fading. Even in the comparatively robust US market, exports are sluggish due to the strong dollar, while the energy sector is feeling the effects of the low oil price. These underlying conditions are unlikely to improve in the near future. To achieve growth in this environment, major efforts are needed in terms of innovative products and technologies. Phoenix Mecano recognised this necessity early on and has invested heavily in new product lines and market segments. This strategy is not without its risks and requires determination and patience. A raft of initiatives are already bearing fruit, such as technology investments in the Mechanical Components division. It is also important that such initiatives are regularly and critically reviewed and targeted action taken where things are not moving in the right direction. Phoenix Mecano's management team is working hard to implement the measures needed to meet our growth and earnings targets. We expect this year's operating result to match or exceed that of the previous year, leaving aside any special items that may arise should further necessary measures be identified to achieve the turnaround of the ELCOM/EMS division or the optimisation of our two main income drivers, Enclosures and Mechanical Components. Against this backdrop, the management and Board of Directors of Phoenix Mecano AG anticipate a positive trend in 2016, particularly in terms of earnings.