COMET: Macroeconomically induced demand decline and high restructuring costs lead to significant loss in first half of 2009
Flamatt, August 24, 2009. The COMET Group’s results in the first half of the year reflected the global economic downturn in the company’s markets. The world-leading manufacturer of components and systems for non-destructive testing, security and semi-conductors recorded a sales decline of 36% compared to the strong first half of 2008, and an operating loss (EBIT) of CHF 12.9 million after high special charges of CHF 6.1 million. The rapid and timely measures to reduce costs and boost efficiency are beginning to show positive effects, which will increasingly make themselves felt in the second half of 2009. The first six months thus already brought a positive free cash flow of CHF 1.1 million. COMET continues to have a sound balance sheet.
In the first half of the year the COMET Group, as anticipated, experienced a substantial fall in demand in its key markets. This had a significant impact on revenue and profitability. Consolidated net sales amounted to CHF 70.2 million in the first half of 2009, a decrease of approximately 36% from the strong year-earlier period, with currency effects negligible on balance. By far the hardest-hit were the semiconductor and solar markets, but investment in other sectors, such as the automotive industry, was also down markedly. With a reduction of about 40%, the most strongly affected large regions were the USA and Asia.
The operating loss (EBIT) of CHF 12.9 million (H1 2008: operating income of CHF 4.1 million) was a consequence both of the downturn-driven decline in demand and, in large part, of CHF 4.0 million in restructuring-related one-time charges and CHF 2.1 million of impairment from exiting the minitube activities. At EBITDA level, the loss was CHF 0.8 million before special charges and CHF 5.7 million after special charges (H1 2008: profit of CHF 10.9 million). Despite the difficult business conditions, COMET maintained a positive free cash flow of CHF 1.1 million while continuing its investment activity, and commands a sound cash position of CHF 21.4 million. The equity ratio, at 50.0%, remained virtually at the prior-year level (50.7%). The initiated capacity adjustments and structural changes are progressing as planned and will generate growing benefits in the second half of 2009. In total, these measures will reduce the cost base for annualised staff and other administrative expenses by CHF 9-10 million.
With effect from the beginning of 2009 the operational responsibility for the development and production of high voltage X-ray generators was transferred from the Systems division to the Modules & Components division. As a consequence, pro-forma data is used for the comparative 2008 segment results in the discussion below.
Modules & Components division
The Modules & Components division posted sales of CHF 35.5 million. This represents a decrease of 39.8% excluding currency effects. Profit at EBITDA level was CHF 1.6 million before special charges of CHF 3.4 million; of these special charges, CHF 1.0 million resulted from the discontinuation of the minitube activities and CHF 1.3 million arose from the relocation of the generator business (H1 2008: EBITDA profit of CHF 7.8 million).
The two product areas in the Modules & Components division initially performed very differently: Industrial X-Ray thus far felt the economic slump much less strongly than Vacuum Capacitors, but even in Industrial X-Ray the sales of CHF 25.9 million did not match the year-earlier level (CHF 30.4 million) due to the business-cycle-driven decline in the non-destructive testing business (the currency-adjusted decrease was 17.9%). Only the Security market segment showed modest growth. The relocation of the generator activities from Hamburg to Switzerland has set the stage for the aggressive further development of the X-ray tube into an integrated X-ray source and thus for the realization of promising future potential. In light of easing new orders towards the end of the second quarter, however, a slight decline over the next several months is likely.
The revenue result in Vacuum Capacitors, where the sales of CHF 9.6 million (H1 2008: CHF 26.5 million) were down 64.9% in currency-adjusted terms, reflected the pronounced demand erosion in the semiconductor and solar markets, which reached its full extent in the first half of 2009. Especially in this product area, COMET was quick to take the necessary action to cut costs. Vacuum Capacitors nevertheless continued to progress with its forward strategy in RF modules and the development of a capacitor for the solar market, and is thus considered to be well-positioned for the next upturn. Early indicators are already signalling a pick-up in the semiconductor market.
The falling demand in all relevant industries, led by the automotive sector, was the key factor in the results of the Systems division in the first half of the year. Sales declined to CHF 43.4 million or by 31.6% from one year earlier; excluding currency effects, the decrease amounted to 29.7%. The division's sharpest revenue losses were registered in the USA and Asia. With the exception of customer solutions in the CT systems area, the sales attrition occurred across all product groups. At EBITDA level the Systems division recorded a loss of CHF 3.0 million before restructuring costs of CHF 2.6 million. The restructuring expenses were incurred primarily for the relocation of the Feinfocus activities from Garbsen to Hamburg, which will be completed toward the end of 2009. Recent trends indicate a recovery in the Chinese and Japanese markets during the course of the second half of the year.
The business outlook varies from market to market. While the trend in the automobile industry is relatively subdued as a result of the recession, there are early signs of a mild recovery in the semiconductor and solar markets. On balance, COMET expects that, in all markets, the bottom of the trough will be passed toward the end of 2009.
Given the reduced visibility, the sales trend in the second half of the year is still uncertain. The current pace of new orders does not yet augur a recovery in the near future. Opportunities in the semiconductor and solar space contrast with risks in the non-destructive testing area. COMET expects sales in the latter half of the year to be in line with the level of the first six months and does not foresee a need for further significant special charges for restructurings and staff adjustments. As well, the cost-saving measures taken in the first half of the year will gain more traction going forward and are expected to permit COMET to deliver a profit at EBITDA level in the second half of the year.
With the growth initiatives in the product areas of RF modules for semiconductors and solar, e-beam, and high power X-ray modules, COMET is confident that, despite the current sales slump, it remains well-positioned to open up new markets and win higher market shares.