BIG ENOUGH

TO COMPETE - SMALL ENOUGH

TO CARE.

INTERIM REPORT 1. half year of 2023/2024

Interim report for the first half year of 2023/2024

Contents

Interim group management report

Consolidated balance sheet

Consolidated statement of comprehensive income

Statement of changes in equity

Cash flow statement

Notes including segment reporting

Interim group management report: 1. Fundamentals of the Group

Over the past years, FORTEC as a group has gradually transformed itself from a trading company into a system supplier of industrial high-tech products and is now part of the international added value chain. Acting as a link between various production plants of internationally active suppliers, in particular from the Far East, as well as European and American customers, FORTEC occupies an attractive growth niche and is constantly expanding its position as a supplier of customer-specific product solutions for industrial use, for example through its own software and hardware developments, as well as the expansion of its own production services.

Target customers are companies with long-term positioning, primarily in the high-growth areas of industrial automation, information technology, security technology, medical technology and the field of automotive engineering. Attractive niche markets such as railway and transportation are also focal areas. FORTEC's success is founded on a large number of long-standing customer relationships. The aim of our sales activities is to build strategic partnerships with top customers who are leaders in their own market sectors, as well as with customers with smaller and medium-sized order volumes. Due to ever-greater complexity, orders are increasingly commonly long-term projects and the companies of the FORTEC Group - as suppliers - are becoming long-term, strategic partners to their customers.

For over 38 years now, FORTEC has consistently generated excellent returns with its business model, which has been tested in multiple cycles. With increased activity in the design of complete (sub)systems based on in-house technologies, the Group is gaining in autonomy and becoming increasingly competitive in a global environment.

The Group has several regional offices in Germany that provide local customer support. FORTEC is represented by a sales office in Austria and by its wholly owned sales subsidiary FORTEC Switzerland (formerly ALTRAC) in Switzerland. Furthermore, FORTEC is represented in the Benelux states with a shareholding in the Dutch trading company Advantec Electronics and through the foreign subsidiaries FORTEC United Kingdom (formerly Display Technology) in the United Kingdom, Apollo Display Technologies in the USA, and FORTEC Czech Republic (formerly Alltronic) - a subsidiary of AUTRONIC - in the Czech Republic.

The Group occupies two attractive sectors of the high-quality electronics market. FORTEC is one of the market leaders in German-speaking countries in the fields of data visualisation (display and embedded computer technology) and industrial power supplies. Furthermore, FORTEC has established good positioning on the Anglo-American market with its subsidiaries.

By linking the product areas of Display Technology and Embedded Computer Technology to form a data visualisation system, FORTEC also offers complex solutions for an innovative market. The Group's fields of competence range from the delivery of system-tested standard kits, to support services in the area of hardware and software for the sale of standard devices (for example, for professional display systems for industry or digital signage as well as complete monitors), right up to customer-specific developments and product solutions. The FORTEC Group's portfolio also includes TFT controller and drive solutions developed in-house, as well as the latest generation of optical bonding technology.

In the product area of power supplies, FORTEC covers the complete product range of power supplies and DC/DC converters, from standard products from the Far East, through series devices modified in Germany, right to customer-specific developments for niche markets realised by the subsidiary company AUTRONIC.

In this successful segment, EMTRON continues to concentrate on the pure distribution business. Stock availability of the right products forms the basis for success here. The foundations for further growth were set in place in 2019 with the construction of the new building in Riedstadt. Distribution in Great Britain and the USA is undergoing consistent expansion via the foreign subsidiaries there.

All companies of the FORTEC Group have one claim in common: "Using our expertise and speed, we create long-term value for our customers in all industries. That is how we establish long-term partnerships of equals with our customers. Our customers interact with qualified employees for whom flexibility, reliability and transparency are a given. By living the traditional values of a medium-sized business, we also continually improve our international competitiveness. We are "big enough to compete, small enough to care". This is the combination that creates a firm basis for long-term growth and gives our owners an attractive stake in our business success."

Interim group management report: 2. Control system

As a group listed on the stock exchange, FORTEC has well-established control systems that enable it to maintain a constant overview of important group activities. The Management Board receives monthly reports on the control and monitoring of the companies and is in regular contact with them.

In order to fully utilise synergies, reporting is partially carried out on an inter-company basis according to segments. Such aspects as incoming orders, the contribution margin (CM I = gross margin), turnover and EBIT serve as relevant key performance indicators. The Group considers turnover and EBIT to be the most important financial performance indicators.

Interim group management report: 3. Research and development

The FORTEC Group is mainly active as a system provider in the data visualisation segment to provide its customers with added value and differentiate them from the competition thanks to innovative applications and procedures. The Group is therefore investing continuously and sustainably in its own development competence and maintains a development department with 24 (previous year: 22.75) employees and invests both in traditional product development (e.g. video converters and network IoT products) and in the further development of production technologies with an expenditure of around EUR 1.2 million (previous year: EUR 1.3 million) on 31st December of the year.

Interim group management report: 4. Economic report

Macroeconomic and sector-specific framework conditions

The global economy is showing signs of stabilisation but at a low level according to the Federal Ministry for Economic Affairs and Climate Action. The continued challenges relating to growth and inflation indicate that the global economy will continue to be confronted with below-average growth. The delivery bottlenecks caused by COVID-19 have caused weak production growth in the global machining industry. The hoped for economic recovery due to the reopening of China did not last long, which caused a general reduction in economic dynamism.1 According to statistics, an increase to the global gross domestic product in 2024 is expected to be around 4 % compared to the previous year.2

In the euro zone, Eurostat reports that the gross domestic product (GDP) in the second half of 2023 is unchanged compared to the previous quarters. In comparison to the last two quarters of the previous year, the GDP has also only changed by 0.1 % in the last quarter.3

In Germany, the overall economic conditions stagnated in the final quarter of 2023 due to various crises. High inflation rates and weakening demand both domestically and internationally slowed down the recovery from the COVID-low. The increased energy costs due to the war in Ukraine have caused an energy crisis that continues to affect Germany. According to the German Federal Statistical Office, the price-adjusted gross domestic product reduced by 0.4 % in 2023 compared to the previous year.4

The industrial purchasing managers index (PMI) in Germany was at 43.3 point in December 20235, which indicates a decline in industrial production. This index comprises various indicators such as incoming orders, production, employment, delivery times and stock levels

The association of German electrical and electronic manufacturers (ZVEI) recorded around 1.6 % fewer incoming orders in the German electrical and digital industry in the previous year, but this was also expected in the context of a gradual relief following the COVID crisis.6

  • 1https://www.bmwk.de/Redaktion/DE/Schlaglichter-der-Wirtschaftspolitik/2023/12/11-weltwirtschaft.html

  • 2https://de.statista.com/statistik/daten/studie/159798/umfrage/entwicklung-des-bip-bruttoinlandsprodukt-weltweit/

3

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwjKiruAzqWEAxW5gP0HHbvSDcQQFnoECBYQAQ&url=https%3A%2F%2Fec.europa.eu%2Feurostat%2Fdocuments%2F2995521%2F18404141%2F2-30012024-AP-DE.pdf%2F6a7c7ff2-9350-8661-aea5-618d237639e5&usg=AO

  • 4https://www.destatis.de/EN/Press/2024/01/PE24_038_811.html

  • 5https://www.investing.com/economic-calendar/german-manufacturing-pmi-136

6

https://www.zvei.org/fileadmin/user_upload/Presse_und_Medien/Publikationen/Regelmaessige_Publikationen/Daten_Zahlen_und_Fakten/Die_deutsche_Elektroindustrie_Daten_Zahlen_Fakten/Faktenblatt-Februar-2024.pdf

Interim group management report: 5. Business development

Despite a challenging geophysical and economic business environment, FORTEC was able to carry on the momentum from the previous financial year in the first half of the 2023/2024 financial year.

The operating earnings before interest and taxes (EBIT) decreased slightly from EUR 4.6 million in the previous year to around EUR 4.5 million. The order book normalised due to improved delivery capability at around EUR 68.0 million on 31st December 2023 (30th June 2023: EUR 83.0 million).

Interim group management report: 6. Profit situation

In the first half of the current 2023/2024 financial year, FORTEC achieved a group turnover of EUR 47.0 million after EUR 49.4 million in the previous year. The decline of 5 % is due to the traditionally weaker second quarter in addition to the generally challenging economic conditions. Furthermore, the reduced number of working weeks compared to the previous year due to company closures for public holidays resulted in reduced invoicing in this period.

Other operating income reduced significantly to EUR 0.9 million compared to around EUR 1.6 million in the previous year. The change was mainly based on reduced income from exchange differences from EUR 0.8 million to EUR 0.6 million (previous year: EUR 1.4 million).

Based on the reduced turnover, the cost of materials at EUR 31.6 million (previous year: EUR 34.4 million) also reduced proportionally.

The gross margin, taking into account the change in inventories of unfinished/finished goods, increased from 32.5 % to 35.8 % in the first half of the 2023/2024 financial year. The cost of sales ratio decreased slightly to 64.2 % in the first half of 2023/2024 compared to 67.5 % in the previous year.

Personnel expenses rose again by EUR 0.7 million to EUR 8.5 million (previous year: EUR 7.8 million). This increase is mainly the result of general salary adjustments and more expensive subsequent appointments due to the tough situation on the labour market. The personnel cost ratio in relation to turnover therefore increased significantly from 15.7 % to 18.0 %.

The depreciation item increased slightly to EUR 836 thousand (previous year: EUR 797 thousand).

Other operating costs reduced by around EUR 0.5 million to EUR 3.9 million. EUR. This is due to currency losses that were around EUR 0.5 million lower at EUR 0.6 million (previous year: EUR 1.1 million). Costs reduced slightly relative to turnover, from 9.0 % to 8.1 %.

Earnings before interest and taxes (EBIT), an important financial performance indicator only reduced slightly from EUR 4.6 million to EUR 4.5 million. The EBIT margin based on turnover increased despite this to 9.6 % (previous year: 9.4 %).

Taxes on income and earnings increased slightly from EUR 1.2 million in the previous year to EUR 1.3 million in the current financial year.

The consolidated net profit for the first half of the 2023/2024 financial year stood at EUR 3.2 million (previous year: EUR 3.4 million). The return on sales after taxes therefore remained almost unchanged at 6.8 % (previous year: 6.9 %) compared to the previous year.

Earnings per share fell slightly from EUR 1.04 in the previous year to EUR 0.99 in the reporting year.

Interim group management report: 7. Asset situation

On the assets side, with a balance sheet total of EUR 76.7 million (30/06/2023: EUR 76.3 million), non-current assets amount to EUR 16.4 million (30/06/2022: EUR 16.7 million).

At EUR 6.5 million, the goodwill from the acquired subsidiaries remains the largest item. Due to accounting in accordance with IFRS 16, rights of use amounting to EUR 4.6 million (30/06/2022: EUR 4.8 million) are reported.

The stocks at EUR 31.3 million (30/06/2022: EUR 32.6 million) are the largest single item in the current assets.

The receivables from deliveries and services item fell as of the reporting date from EUR 11.4 million on 30 June 2023 to EUR 8.1 million. Cash and cash equivalents increased from EUR 13.2 million on 30 June 2023 to EUR 18.5 million on 31 December 2023.

The Group's equity ratio was 76.1 % (30/06/2023: 72.1 %). At EUR 58.3 million (30/06/2023: EUR 55.0 million), the Group has sufficient equity.

On the liabilities side, non-current bank liabilities fell from EUR 1.3 million on 30 June 2023 to EUR 1.1 million due to scheduled repayments.

The current provisions remained almost unchanged at EUR 453 thousand (30/06/2023: EUR 452 thousand). Liabilities due to deliveries and services fell to EUR 4.5 million on 31 December 2023 (30 June 2023: EUR 6.5 million).

Interim group management report: 8. Financial and liquidity position

The goal of financial management is to safeguard corporate success against financial risks of any kind. The Group pursues a conservative financing policy with the aim of securing its liquidity at all times. In doing so, the Group applies a steady and responsible dividend policy and utilises the freely available bank balances, which are intended to exceed the Group's current liabilities. This ensures liquidity at all times.

The Group's objective is to sustain a strong capital base in order to maintain investor, market and creditor confidence. The objective of capital management is to ensure that business operations are based on a high level of equity financing. To maintain or adjust the capital structure, the Group may make adjustments to dividend payments and share buybacks, and issue new shares.

The FORTEC GROUP defines the net financial assets that are relevant for a potential company valuation as the difference between the cash and cash equivalents, and the interest-bearing financial liabilities, of which the FORTEC GROUP only counts the bank liabilities. The net financial assets defined in this way were therefore EUR 17.1 million on 31 December 2023 (30 June 2023: EUR 11.6 million).

The operational cash flow increased in the first half of the 2023/2024 financial year from EUR -1.7 million to EUR 6.2 million. The reasons for this are reductions to stock and receivables.

The cash flow from investments reduced from EUR 229 thousand in the previous year to EUR 124 thousand. The reasons for this are lower investments in the reporting period compared to the previous year.

The negative cash flow from financing activities reduced significantly from EUR 1.1 million to EUR 729 thousand. In total, the Group recorded cash and cash equivalents of EUR 18.5 million (previous year: EUR 9.8 million).

Interim group management report: 9. Forecast report

The following statements regarding the future course of business and the assumptions of the economic development of the market and the industry are based on our assessments, which we currently consider to be realistic according to the information available to us. Various known and unknown risks, uncertainties and other factors may mean that the forecast developments do not actually come into being, either in terms of their tendency or their extent.

The majority of sources expect the economic situation to calm down, which makes the outlook moderately positive. The European Central Bank talks of a gradual stabilisation of the economic situation as of 2024 driven by increased real income and a recovery in foreign demand.7

However, the slightly positive outlook for economic development is still accompanied with negative influences for FORTEC's business development. The consequences of the current delivery situation combined with the offshoots of the inflation-driven price increases will continue to affect the 2024 calendar year significantly. Assuming that there is no deterioration in the aforementioned factors in the current financial year 2023/2024 and provided that the measures already initiated in the second quarter take effect as planned, the Board of Directors confirms the forecast made in the 2023 financial report and expects consolidated turnover of between EUR 106.0 million and EUR 116.0 million and consolidated EBIT in the range of EUR 9.5 million to EUR 11.0 million.

7https://www.ecb.europa.eu/pub/projections/html/ecb.projections202312_eurosystemstaff~9a39ab5088.en.html#toc2

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FORTEC Elektronik AG published this content on 26 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 March 2024 07:16:08 UTC.