Cicor Group Grows Significantly and Shows Robust Operational Performance in a Challenging Environment

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Cicor Group has continued to grow significantly in the first half of 2024, advancing into the top tier of European electronics manufacturers. Net sales reached CHF 231.3 million, an increase of 16.1% compared to CHF 199.2 million for the first half of 2023. Despite negative one-off effects from acquisitions, the operating margin remained constant at 10.7%, while EBITDA rose by 15.9% to CHF 24.7 million (first half of 2023: CHF 21.3 million). Net profit grew disproportionately, resulting in earnings per share of CHF 2.69 (first half of 2023: CHF 1.74). The outlook for the second half of the year remains positive despite the challenging environment.

The newly acquired companies contributed 22.1% to sales growth in the first half of the year. Currency effects had a negative impact of -1.5%, while organic sales decreased by -4.4%. This decline is the result of weak demand in the industrial electronics market due to economic conditions and a several-month delay of a major project in the aerospace and defence sector. This was only partially offset by growth in the medical technology and transport segments.

The order backlog of the Cicor Group remains at around one year's worth of sales and was significantly influenced by two factors during the first half of the year. Firstly, the large orders typical for the aerospace and defence sector are awarded acyclically, and STS Defence, acquired in January 2024, had received such large orders shortly before consolidation. Secondly, after the end of the material shortages that lasted two years, several major customers in Germany have reduced their order horizons back to a normal level of approximately one year. Aside from these effects, Cicor recorded solid order intake. Overall, new orders amounted to CHF 201.1 million (first half of 2023: CHF 221.4 million), corresponding to a ratio of new orders to sales of 0.87 (first half of 2023: 1.11).

In recent years, it has become standard practice for listed companies applying Swiss GAAP FER to offset goodwill against equity. For this reason, and to facilitate comparability with other listed companies, Cicor offsets goodwill from acquisitions directly against shareholders' equity at the time of acquisition, as from 1 January 2024, per the accounting policy choice provided in Swiss GAAP FER 30. Intangible assets from acquisitions, such as brand value, customer relationships, or intellectual property, will continue to be capitalised on the balance sheet and amortised over their expected useful lives. These changes in financial reporting are applied for the first time in this Half-Year Report, and the comparative period of the previous year has been adjusted accordingly.

The operating units of the Cicor Group made significant progress in operational excellence. Consequently, despite the decline in organic revenue, the operating margin for both EBITDA and EBIT before acquisitions increased. The acquisitions resulted in an overall dilution due to the relatively low margin of the acquired TT Electronics IoT companies compared to the rest of the Group. Additionally, the acquisitions completed in the first half of 2024 had a one-time negative impact of CHF 1.7 million (0.8% of net sales) on the Group's EBITDA and EBIT, as accounting standards require that net assets acquired in a business combination be recognised in the consolidated balance sheet at fair value rather than book value. This effect was fully reflected in the reported results, with no adjustments made. Against this backdrop, Cicor considers the EBITDA margin of 10.7% during the reporting period (unchanged from the first half of 2023) and the EBIT margin of 6.5% (first half of 2023: 6.7%) as highly positive.

The net result benefited from a depreciation of the Swiss franc against Cicor's key foreign currencies since 31 December 2023, resulting in a slightly positive financial result despite deducting of interest costs. The tax rate was also significantly lower at 23% compared to the first half year of 2023 (28.3%). Consequently, net profit increased by 53.9% to CHF 11.9 million (first half of 2023: CHF 7.7 million). Earnings per share, which already account for the shares reserved for the conversion of the mandatory convertible bond, rose significantly by CHF 0.95 to CHF 2.69 compared to the previous year period (CHF 1.74).

Important progress was made in reducing net working capital. In particular, inventory levels were further reduced. This contributed to a free cash flow before acquisitions of CHF 21.1 million in the first half of the year, a fourfold increase compared to the previous year (first half of 2023: CHF 5.2 million). For the three acquisitions completed during the reporting period, Cicor invested CHF 51.0 million (first half of 2023: CHF 22.0 million), resulting in a negative free cash flow after acquisitions of CHF -30.0 million (first half of 2023: CHF -16.8 million).

The balance sheet of Cicor as of 30 June 2024 remains solid. The high net result and the increase in free cash flow before acquisitions had a positive impact. The Group's equity changed only slightly to CHF 131.1 million (31 December 2023: CHF 131.5 million) because the goodwill from acquisitions completed in the first half of the year was offset against equity. The equity ratio thus reached 31.4% (31 December 2023: 38.2%). Cicor's leverage (net debt relative to EBITDA) increased from 0.96 as of 31 December 2023 to 1.50 as of 30 June 2024 because of the transactions of the past months.

Progress in Strategy Implementation

The focus on strategic customer relationships in markets with high entry barriers has continued to pay off, enabling Cicor to organically gain market share in a cyclically contracting market. The acquisitions completed since the beginning of the year have allowed Cicor to advance into the top tier of European electronics manufacturers and significantly strengthens its strategic position.

The acquisition of STS Defence Ltd (Gosport, UK, completed in January 2024) has strengthened both market share and development expertise in the UK aerospace and defence (A&D) market.

With the acquisition of the TT Electronics IoT Solutions Ltd. at the end of March 2024, with locations in Newport and Hartlepool (both UK) as well as Dongguan (China), Cicor has achieved market leadership in electronics manufacturing in the UK and has become the market leader in A&D amongst European EMS providers. This acquisition also strengthens the geographic footprint with a facility in China, allowing for local customer support in this market.

The integration of Evolution Medtec Srl (Bucharest, Romania) doubles Cicor's development resources in the medical technology sector and is therefore a key step in strengthening the company as a leading development partner for its customers.

EMS Division – Growth Driver with Leading Profitability

In line with strategy, the Electronic Manufacturing Services Division is the growth driver of Cicor Group, with sales in the reporting period of CHF 208.5 million, an increase of 16.5% over the CHF 179.0 million achieved in the first half of 2023. This growth was driven by the acquisitions, contributing 24.3%. Conversely, organic revenue declined by -6.2%, as previously mentioned. Foreign currency effects contributed -1.7%.

The progress in operational excellence of the existing units is very positive and enabled a slight increase in the EBITDA margin from 11.4% in the first half of 2023 to 11.6% in the reporting period. The newly integrated STS Defence contributed positively to margin development, whereas the TT Electronics IoT companies delivered an unchanged mid-single-digit margin contribution in the first three months of integration.

Management is focusing on rapid integration of the acquired companies as well as aligning the operating margin of the TT Electronics IoT companies with Cicor's target level and is highly confident that significant progress in this direction will be evident by the end of 2024.

AS Division – Technology Leader with Regained Strength

The results of the Advanced Substrates Division are entirely positive. All units contributed to the organic sales growth of 14.3%. In medical technology, market share increased, and new customers were acquired, while demand from the aerospace and defence market was higher. The contribution from acquisitions was 1.8%, and the appreciation of the Swiss franc had a negative impact of -0.5%. Overall, sales in the reporting period increased by 15.7% to CHF 23.9 million (first half of 2023: CHF 20.6 million).

The successful implementation of a multi-year excellence programme in printed circuit board manufacturing has significantly strengthened the Cicor site in Boudry, Switzerland (Cicorel SA). Consequently, the division recorded an increase in the EBITDA margin to 14.4% in the first half of 2024 (first half of 2023: 11.8%).

Cicor's management will continue to leverage organic growth opportunities in the AS Division and aims to further improve profitability.

Outlook for the Second Half and Full Year 2024

The expected increase in order intake and sales in the existing business and the progress in integrating newly acquired companies lead to a higher guidance than previously communicated. Provided there are no significant changes in the economic and geopolitical situation or exchange rates, Cicor anticipates annual sales for 2024 to be between CHF 470 and 510 million (previous guidance: CHF 460 to 500 million) and an operating result at the EBITDA level of CHF 50 to 60 million (previous guidance: EBITDA margin in the target range of 10-13%).

The Board of Directors and Management of Cicor will continue to pursue their strategy of becoming a leading European provider of development and manufacturing services for high-end electronics in the medical technology, industrial electronics, and aerospace & defence segments, aiming to achieve significantly above-average growth rates in revenue, operating income, and earnings per share.