Schlatter Industries : Semester Report 2022

Markets

Welding equipment markets

Reinforcing mesh production systems

The high order intake in the welding segment is dominated by reinforcing mesh production sys- tems. High steel prices resulted in continued high demand for reinforcing mesh production sys- tems, especially in Europe and North America, in the first half of the year.

In Asia and on the South American markets, the investment climate was still much less fa- vourable. Reasons for this are the economic consequences of the pandemic and the deteriorating economic outlook.

Industrial mesh production systems

Europe and the USA are among the most important markets for industrial mesh. Demand remained stable and satisfactory, including demand for end-to-end solutions in areas such as cable carriers and warehouse storage grating.

In the US market, there is increasing evidence of products previously made in China now being repatriated. The reasons for this phenomenon include steeper import tariffs, higher transport costs, and the more rapid availability of locally produced goods.

The European market for industrial mesh is around the pre-pandemic level. All sorts of industries and areas of application can be targeted with systems for the production of industrial mesh. This product area is less volatile than that of reinforcing mesh systems and offers growth potential.

Modernization

There is great potential in the modernization of industrial and reinforcing mesh production plant. Many customers are tending to modernize their existing installations rather than buy new systems. Demand for upgrades and retrofits therefore remains high.

Rail welding

In the rail welding product area, there are opportunities above all in the emerging markets. In Western markets only a few new rail networks are entering into service. The rail welding business has low cyclical exposure, as the construction of railway networks is predominantly driven by government decision-making.

India in particular will be investing substantially in the renewal of its railway network over the next few years. Schlatter therefore opened a local branch in the last financial year together with a long-standing distribution partner, and is now starting to localize the production of mobile rail welding systems. Not only will this lead to an adjustment of production costs to local needs, it will also address the issue of local value creation, as required by the Indian government.

In the rail welding business area too, Schlatter offers upgrades and modernization solutions. These account for a significant proportion of its work in the fields of both stationary and mobile rail welding machinery.

Weaving machine markets

The market situation for the weaving segment is good overall, and demand is buoyant.

Weaving machinery for the paper industry

In the second half of 2021, the paper industry rebounded from the influence of the Covid pandemic and many significant weaving projects were clinched. The brisk demand compared with previous years continued in the first half of 2022. Our customers are producing at high levels of capacity utilization, and sales of replacement parts are buoyant.

Schlatter markets an extensive range of machinery for all stages in the value chain: winding machines (warping machines) that prepare the threads on canisters for weaving machines, weaving machinery for various paper machine clothings, and fabric finishing systems. An increase in demand for machinery for all processing steps was recorded. Pleasingly, customer interest in systems for the finishing of paper machine clothing bounced back strongly after little investment was made in this area in previous years.

Investment activity is very high in China, after customers in this market exhibited a reluctance to make new investments in previous years.

Numerous customers are currently exhibiting high capacity utilization, a need to modernize, and rationalization investments in new machines. The paper requirement for newspapers and magazines is down, but production for brown and hygiene paper is on a constant rising trend.

The increasing move away from plastic also has potential for paper use. Conversely, the improved quality of paper machine clothing means that it can be used for longer.

Technical fabrics

Under the C-Tec (Contactless) brand, Schlatter has developed a new generation of machinery in the medium to high tension area which permits applications for numerous other technical

weaves such as filters and processing belts. Over the next few years, this will enable Schlatter to build up a new business area to offset the pronounced volatility of the weaving machinery business for the paper industry.

Wire weaving

In the area of wire weaving systems, there is potential in particular for applications such as security grilles, sieves and mosquito screens. Schlatter has stepped up its marketing operations, as the wire weaving area has not seen sufficient efforts in this field in recent years. Regaining lost customers is proving more difficult than expected. Nevertheless, Schlatter landed some major contracts in the first six months.

Replacement parts and services markets

The spare parts and services business remained buoyant thanks to high capacity utilization at our customers, but growth was held back by supply chain disruption. The spare parts and services business is extremely important, as Schlatter has a large number of installed systems all over the world. It contributes around 30 per cent of the Schlatter Group's net sales.

The Schlatter Group assumes that the sanctions imposed on Russia will not have a impact on its business development, as Russia is not one of its main markets.

Welding segment

Key performance indicators

Order intake: CHF 71.7 million (first half of 2021: CHF 52.0 million)

Net sales: CHF 44.5 million (first half of 2021: CHF 37.3 million)

Order backlog: CHF 85.8 million. (31.12.2021: CHF 58.7 million)

The profitability of the welding segment was hampered by disrupted supply chains and a lack of availability of key parts for machines and systems, as well as price increases on the purchasing side and a further appreciation of the Swiss franc. However, these negative effects contrast with the higher sales volume, which permits economies of scale. The increased project volume was realized with a lower rise in fixed costs.

Enhancement of the versatile machinery platform

This platform is constantly being expanded for new applications. With a few exceptions, in the area of reinforcing mesh the latest modules will completely replace the previous modules during 2022; industrial mesh systems were transferred entirely to the platform in the previous year.

Reinforcing mesh production systems

This product area generates the highest sales in the Schlatter Group and order intake has already increased substantially from the high level registered in 2021. Steel prices are declining moderately and this will slow investment in reinforcing mesh production systems to some extent.

Industrial mesh production systems

The business of producing industrial mesh is less volatile than that for reinforcing mesh systems, and has returned to the level recorded prior to the pandemic.

Sector-specific solutions are continuing to be developed for the flexible, productive MG950 family of industrial mesh products - i.e. integrated system solutions for the manufacture of end products. These manufacturing concepts integrate machines and equipment not dedicated solely to mesh production.

Digitalization drive continues

Schlatter is continuing to focus on digitalization. Renewal of the control platform and the operating interface on machinery is being driven forward steadily.

Rail welding product area

Competition in mobile rail welding systems has intensified over the last few years, as large corporations that cover the broader area of rail-track superstructure have extended their product portfolios into this market. Our mobile rail welding systems are designed primarily for West Eu- ropean markets. However, as few new railways are being built in these regions, sales are decli- ning.

Through the newly established joint venture in India with our distribution partner Maco, we are also seeking to gain a stronger foothold in the emerging markets; localization of the mobile rail welding systems business is progressing as planned.