Swiss Exporters

8/4/2019 Swiss Exporters

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Swiss

Exporters

www.valuhunteruk.com


2/49

What is the purpose of this

presentation?

To give a brief outline of the Swiss economy

and the possible implications of the recentmove to weaken the CHF.

benefit from a cheaper CHF.

Nothing contained within this presentation is

a recommendation to buy or sell.



3/49

What companies?

1. Huegli Holding AG (HUE:SW)

2. Kudelski SA (KUD:SW)

3. Bossard Holding AG (BOS:SW)

4. Forbo Holding AG (FORN:SW)5. Rieter Holding AG (REIN:SW)

6. Daetwyler Holding AG (DAE:SW)



4/49

Macro catalyst As concerns regarding expansionary monetary policy

in developed countries have intensified CHF hasacted as a safe haven.

CHF has acquired this safe haven status due to the

tough on inflation.

Exports are extremely important to the domesticeconomy and the appreciation of the CHF has meant

that domestic companies are struggling to staycompetitive.



5/49

YoY Growth in GDP, Consumption and Fixed Capital

Expenditure

5.00%

10.00%

15.00%

-15.00%

-10.00%

-5.00%

0.00%

GDP

CONS

FIXED CAPEX



6/49

YoY Growth in Exports, Imports and Net Exports

40.00%

60.00%

80.00%

5.00%

10.00%

15.00%

20.00%

-40.00%

-20.00%

0.00%

20.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

IMP

NET EXP(rhs)



7/49

Net exports, Fixed Capital Expenditure and Final

Consumption Expenditure as a % of GDP

50.00%

60.00%

70.00%

80.00%

90.00%

20.00%

25.00%

30.00%

35.00%

0.00%

10.00%

20.00%

30.00%

40.00%

0.00%

5.00%

10.00%

15.00%

2000-01-01

2000-06-01

2000-11-01

2001-04-01

2001-09-01

2002-02-01

2002-07-01

2002-12-01

2003-05-01

2003-10-01

2004-03-01

2004-08-01

2005-01-01

2005-06-01

2005-11-01

2006-04-01

2006-09-01

2007-02-01

2007-07-01

2007-12-01

2008-05-01

2008-10-01

2009-03-01

2009-08-01

2010-01-01

2010-06-01

2010-11-01

2011-04-01

NET EXP

FIXED CAPEX

CONS(rhs)



8/49

CHF 3m Libor and Growth in CPI

2

3

4

-2

-1

0

1 CHF 3m LIBOR

CPI YoY



9/49

Monthly Growth in Money Aggregates

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2001 01 2002 01 2003 01 2004 01 2005 01 2006 01 2007 01 2008 01 2009 01 2010 01 2011 01

M1 YoY

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2001 01 2002 01 2003 01 2004 01 2005 01 2006 01 2007 01 2008 01 2009 01 2010 01 2011 01

M3 YoY



10/49

EUR/CHF Exchange Rate Since Mid-2002

1.5

1.6

1.7

1.8

1

1.1

1.2

1.3

.



11/49

What are the most important facts

about the Swiss economy? Net exports play a significant role in GDP growth accounting

for 12% of GDP in the last quarter.

However, growth in net exports has slowed considerably since

the recession beginning in 2008. Growth in net exports went

ne ative a ain in 1 2010 and has sta ed ne ative ever

quarter since.

Fixed capital expenditure has increased covering any shortfall

in net exports however, growth here has also begun to slow.

We can see that despite fast growth in monetary aggregatessince the start of 2008 inflation has been non-existent.

The last data point for CHF 3m Libor (August) was 0.005%.



12/49

SNB Intervention Through 2010, the SNB attempted to intervene in

the currency markets to stem the rise in the CHF. This involved selling large amounts of CHF for

Infamously, this resulted in losses of CHF 26

billion for the SNB on these currency holdings as

the CHF continued to appreciate. Markets seemed to have correctly called the

SNBs bluff.



13/49

SNB begins strengthening resolve August 2011 In a set of three statements through August the SNB

expressed its view, again, that the CHF was massively

overvalued. Through August the SNB stated its intention, through the

series of statements, to expand sight deposits at the SNBrom on o on.

Its aim was for a three-month Libor as close to zero aspossible, narrowing the target range for the three-month Libor from 0-0.75% to 0-0.25%.

The market started to take notice and the EUR/CHFbegan trending away from parity.



14/49

SNB targets EUR/CHF directly On the 6th September the SNB announced it will no

longer tolerate a EUR/CHF exchange rate below the

minimum rate of CHF 1.20. The SNB will enforce thisminimum rate with the utmost determination and is

prepared to buy foreign currency in unlimited

quantities. The SNB also noted that the current massive

overvaluation of the Swiss franc poses an acute threat to

the Swiss economy and carries the risk of a deflationarydevelopment. It added that if the economic outlook

and deflationary risks so require, the SNB will take

further measures.



15/49

EUR/CHF Exchange Rate YTD

1.2

1.25

1.3

1.35

1

1.05

1.1

1.15


SNB begins making

statements about supplying

liquidity

SNB targets EUR/CHF

minimum EUR/CHF rate

of 1.20


16/49

Latest SNB statement 15 September

SNB notes its upmost determination to enforce the

minimum rate and to keep three-month Libor near zero and

maintain sight deposits at the SNB over CHF 200 billion.

Notes that even at 1.20 the Swiss franc is still high and should

continue to weaken over time (emphasis added).

Expresses the view that international demand will soften andwithout the action to weaken the CHF there would be a

substantial threat of recession.

States there is no risk of inflation in Switzerland. There are,

however, downside risks for price stability should the Swiss

franc not weaken further.



17/49

What does this mean and where could it go wrong?

If the SNB is successful, then this will make business far easier forSwiss exporters many of whom have strong records of profitability.

The SNB appears to be effectively demonstrating a clear resolve to

weaken the CHF at any cost. Barry Eichengreens studies of the 1930s showed that countries that

came off the gold standard first (i.e devalued), recovered quickest. Isthis a arallel?

What possible road blocks are there?1. Competitive devaluation. The most worrying would be a large

depreciation of the EUR. Perhaps unlikely with hawkish centralbank.

2. Inflation or faster than expected growth in the second half ofthe year.

3. The market for questions the SNB commitment. After all, theliquidity the SNB is providing is extraordinary.



18/49

Huegli Holding AG

HUE:SW



19/49

Introduction Huegli specializes in the creative development and efficient

production of foods in the convenience segment, primarilycomprising of soups, sauces, bouillons, seasonings, instant meals,

desserts and Italian specialities. The company lists four main divisions: Food Service (sales to

restaurants/hotels/etc.), Private Label, Industrial Foods (semi-finishedproduct such as flavourings), and Health and Natural Food.

, ,

Republic, Italy and the UK.


Sales by Division

Food Service

Private Label

Industrial Foods

Health & Natural

Food

Sales by CountryGermany

Switzerland/ Rest of

Western Europe

Eastern Europe


20/49

Share price since 2004

500.00

600.00

700.00

800.00

0.00

100.00

200.00

300.00

400.00

Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11



21/49

Financials

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

EBIT

Net Income

Revenue (rhs)

In organic terms, sales increased 3.2%

in 2010. In CHF terms, sales fell 4.7%.

Margins increased in 2010 due to

lower than expected raw material costs.

The companys financial position isstrong and leverage is falling.


--

2000 2002 2004 2006 2008 2010

In the interims, raw material costs

increased slightly but the real

problem was with currencies. 0.1% in

organic sales growth translated to -13% in CHF terms.

RNOA is growing strongly, ROE is

falling due to CHF strength.

0.0x

0.5x

1.0x

1.5x

2.0x

.

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

.

2000 2002 2004 2006 2008 2010

RNOA

PM

ROE

ATO (rhs)


22/49

Valuation

Price 590.00

Shares Outstanding (m) 0.48

Market Cap (m) 282.75

Debt 79.45

Cash 8.59

Enterprise Value 353.61

EV per Share 737.87

0.50

1.00

1.50

2.00

2.50

2007 2008 2009 2010

Historical Price to Book


.

EBIT 37.19

Net Income 27.36

Equity 113.01

FCF 12.83

P/S 0.78x

P/B 2.50x

P/E 10.3xP/FCF 22.0x

EV/EBIT 9.51x

5.00

7.00

9.00

11.00

13.00

15.00

2007 2008 2009 2010

Historical Price to Earnings


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Kudelski SA

KUD:SW



24/49

Introduction Kudelski Group is a world leader in digital security and convergent

media solutions for the delivery of digital and interactive content.

70% of Kudelskis employees work in Europe.

Kudelski operates in three divisions:

1. Digital Television security and access control solutions.

2. Public Access hardware and software based solutions to

globally managed access of people and vehicles to sites.

3. Audio professional recording equipment and high-end Hi-Fi

devices.


Sales by DivisionDigital Television

Public Access

Middleware &

Advertising

Sales by CountrySwitzerland

USA

France

Italy

Germany

UK

Brazil

R.O.T.W


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40.00

50.00

60.00


0.00

10.00

20.00

30.00

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11


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Financials

200.00

400.00

600.00

800.00

1,000.00

1,200.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

EBIT

Net Income

Revenue (rhs)

Gross margins explain most of the

volatility in returns. This is primarily to

do with the business mix.

Whilst TV earned 18% margins in LFY,

Public Access earned 3.5% andMiddleware & Advertising earned -5%.

The company is conservatively

financed with a NFO/CSE of 0.54x


--

2000 2002 2004 2006 2008 2010

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

RNOA

PM

ROE

ATO (rhs)

The company is experiencing fast

revenue growth in Digital TV with far

slower growth in Public Access and

Middleware & Advertising.

Interims were affected badly by the

appreciation of the CHF. Interestingly,

the company sees stronger business in

the second half.


27/49

ValuationPrice 8.15



Debt 553.64

Cash 275.48


EV per Share 13.86

Revenue 1,069.34 3.00

4.00

5.00 Historical Price to Book


EBIT 110.01

Net Income 66.68Equity 418.70

FCF 105.76

P/S 0.37x

P/B 0.95x

P/E 5.96x

P/FCF 3.76xEV/EBIT 6.14x

0.00

1.00

2.00

2007 2008 2009 2010


28/49

Bossard Holding AG

BOS:SW



29/49

Introduction Bossard Group is a global fastening technology and logistics

company. The company also offers worldwide sales, technical andengineering support, and inventory management.

Employs 1500 employees in more than 50 locations worldwide.

v y y , v w u

Zug, Switzerland.


Sales by Continent

Europe

America

Asia


30/49


120.00

140.00

160.00

180.00


0.00

20.00

40.00

60.00

80.00

.

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11


31/49

Financials

100.00

200.00

300.00

400.00

500.00

600.00

700.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

EBIT

Net Income

Revenue (rhs)

In 2010, the company experienced

rapid sales growth of 25% in local

currency and 21% in CHF. This also led

to margin improvement.

Gross margins improved due tochanges in the product mix and more

effective procurement. Personnel

expenses increased sharply.


--

2005 2006 2007 2008 2009 2010

Capital expenditure also didnt

increase as fast as sales leading to an

improvement in asset turns.

The company is conservativelyfinanced with NFO/CSE ratio of 0.14x

Interims showed the same trend.

Rapid sales growth combined with

slower cost growth leading to

improved margins.

1.2x

1.3x

1.3x

1.4x

1.4x

1.5x

1.5x

1.6x

1.6x

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2005 2006 2007 2008 2009 2010

PM

RNOA

ROE

ATO (rhs)


32/49

Valuation

Price 106.00



Debt 59.77Cash 20.33


EV per Share 119.27

Revenue 477.610.40

0.80

1.20

1.60

2.00



EBIT 47.27


FCF 21.24

P/S 0.66x

P/B 1.77x

P/E 7.01x

P/FCF 14.83x

EV/EBIT 7.50x

3.00

6.00

9.00

12.00

2007 2008 2009 2010



33/49

Forbo Holding AG

FORN:SW



34/49

Introduction Forbo is a leading producer of floor coverings, adhesives,

as well as power transmission and conveyor belt

solutions. The company has three divisions: Flooring, Bonding and

Movement.

41 countries worldwide and 47 pure sales organizations in35 countries.


Sales by Division

Flooring

Bonding

Movement

Sales by RegionNorth,Central and South America

Asia/Australia/Africa

Western Europe

Southern Europe

Scandinavia

Eastern Europe


35/49


500.00

600.00

700.00

800.00


0.00

100.00

200.00

300.00

400.00

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11


36/49

Financials

500

1,000

1,500

2,000

2,500

-100

-

100

200

300

400

2000 2002 2004 2006 2008 2010

EBIT

Net Income

Revenue (rhs)

The strong CHF damaged sales growth

heavily in 2010. A 6% increase in local

currency was reduced to 0.4% in CHF.

Bonding and Movement Systems were

the strongest performers with Flooringdescribed as not meeting expectations.

Forbo is conservatively financed with

NFO/CSE ratio of 0.16x.


--300

-

The company experienced strong

profit growth due to falling S&D

and Admin cost.

Currency effects were even more

serious in the interims with

operating profit growth of 4% in

local currency vs. -10.7% in CHF.

Raw material prices also had an

effect.

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

2000 2002 2004 2006 2008 2010

RNOA

PM

ROE

ATO (rhs)


37/49

ValuationPrice 390.00



Debt 266.70Cash 120.10

Enterprise Value 1,066.61

EV per Share 452.14

Revenue 1,789.70

3.00

4.00Historical Price to Book


EBIT 185.90


FCF 150.40

P/S 0.66x

P/B 1.76x

P/E 7.01x

P/FCF 14.83x

EV/EBIT 7.18x

0.00

1.00

2.00

2007 2008 2009 2010


38/49

Rieter Holding AG

REIN:SW



39/49

Introduction Rieter is supplier of machinery and components for short

staple fiber spinning mills.

The company was previously in the automotivecomponents supply business (now Autoneum Holding) butthis was spun off in the first half of the current fiscal year.

The company operates in two divisions:1. Spun Yarn Systems - Machines

2. Premium Textile Components - Components


Sales by Division

Spun Yarn Systems

Premium Textile

Components

Sales by Country

Europe

Asia (inc. Turkey)

North America

Latin America

Africa


40/49


500

600

700

800


0

100

200

300

400

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11


41/49

Financials Experiencing extremely strong demand from emerging

markets.

In CHF terms, sales in H1 2011 were up 66% and 73% inlocal currency terms compared with H1 2010.

Strong financial position with NFO/CSE of 0.32x.

Investing heavily in the business with capex of CHF12.2m in H1 2011 focused in Spun Yarn Systems.

Significant margin improvement and sales growth inSpun Yarn Systems.

Margin improvement and stronger new order growthin Premium Textile Components.



42/49




Debt 278.70

Cash 428.50Enterprise Value 548.66

EV per Share 117.44

Revenue 870.40


.

Net Income 82.90

Equity 360.40

FCF 73.40

P/S 0.80x

P/B 1.94x

P/E 8.43x

P/FCF 9.52x

EV/EBIT 7.25x


43/49

Daetwyler Holding AG

DAE:SW



44/49

Introduction Datwyler Group is an international multi-niche player

dedicated to industrial supply and distribution of

engineering and electronic components. The Group operates in four divisions;

1. Technical Components

.

3. Cabling Solutions4. Sealing Technologies


Sales by Division

Technical Components

Pharma Packaging

Cabling Solutions

Sealing Technologies

Sales by Region

Switzerland

European Union

Rest of Europe

North and South America

Far East

Other Markets


45/49


60.00

70.00

80.00

90.00

100.00


0.00

10.00

20.00

30.00

40.00

50.00

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11


46/49

Financials

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

1,600.00

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2000 2002 2004 2006 2008 2010

EBIT

Net Income

Revenue (rhs)

Datwyler experienced organic sales

growth of 9.8% in CHF in 2010 but 15% in

local currency.

Costs were improved through better

capacity utilization and significantlylower personnel costs as a percentage of

revenues.

The company has a net cash position of


-

200.00

-40.00

-20.00

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2000 2002 2004 2006 2008 2010

RNOA

PM

ROE

ATO (rhs)

roughly CHF 20m.

The company has set the goal of

CHF 2 billion in sales by 2015 at an

EBIT margin of 9-12%.

In the interim the companyexperienced strong sales growth but

had problems due to higher raw

materials prices and the strong CHF.


47/49




Debt 78.20Cash 109.80


EV per Share 45.96

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00



, .

EBIT 127.90

Net Income 98.20

Equity 584.20

FCF 109.80

P/S 0.56x

P/B 1.27x

P/E 7.55x

P/FCF 6.76x

EV/EBIT 5.55x

2007 2008 2009 2010

0.00

0.50

1.00

1.50

2.00

2007 2008 2009 2010



48/49

Conclusions The most interesting companies here are Hugli, Forbo,

Bossard and Datwyler. The detail in each case is slightlydifferent but all three are strong companies that are

suffering primarily from the strong CHF. However, Kudelski and Rieter represent the potential risks

of investment.

u e s , ere s a s rong core us ness an wea

peripheral businesses. We could make the comparison withForbo or Datwyler.

With Rieter, the company is benefitting tremendously fromgrowth in developing markets. The implication is that an

investment in Rieter is essentially a leveraged position onemerging market growth. The comparison here could bewith Bossard.



49/49

Appendix: Valuation ComparisonsHugli Kudelski Bossard Forbo Rieter Datwyler

P/E 10.30x 5.96x 7.01x 7.01x 8.43x 7.55xP/B 2.50x 0.95x 1.77x 1.76x 1.94x 1.27x

EV/EBIT 9.51x 6.14x 7.50x 7.18x 7.25x 5.35x


0.00x

2.00x

4.00x

6.00x

8.00x

10.00x

12.00x

Hugli Kudelski Bossard Forbo Rieter Datwyler

P/E

P/B

EV/EBIT

Swiss Exporters

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