Swiss Exporters

Swiss Exporters
www.valuhunteruk.com
What is the purpose of this presentation?

To give a brief outline of the Swiss economy and the possible implications of the recent move to weaken the CHF. Give an overview of companies that could benefit from a cheaper CHF. Nothing contained within this presentation is a recommendation to buy or sell.
What companies?
1. 2. 3. 4. 5. 6. Huegli Holding AG (HUE:SW) Kudelski SA (KUD:SW) Bossard Holding AG (BOS:SW) Forbo Holding AG (FORN:SW) Rieter Holding AG (REIN:SW) Daetwyler Holding AG (DAE:SW)
Macro catalyst
As concerns regarding expansionary monetary policy in developed countries have intensified CHF has acted as a safe haven. CHF has acquired this safe haven status due to the SNB (the Swiss Central Bank) being perceived as tough on inflation. Exports are extremely important to the domestic economy and the appreciation of the CHF has meant that domestic companies are struggling to stay competitive.
YoY Growth in GDP, Consumption and Fixed Capital Expenditure

15.00%
10.00%
5.00%
GDP 0.00% CONS FIXED CAPEX
-5.00%
-10.00%
-15.00%
YoY Growth in Exports, Imports and Net Exports

20.00% 80.00%
15.00% 60.00% 10.00% 40.00% 5.00% EXP 0.00% 20.00% IMP NET EXP(rhs) -5.00% 0.00% -10.00% -20.00% -15.00%
-20.00%
-40.00%
20.00%
25.00%
30.00%
35.00%
10.00%
15.00%
0.00% 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 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00%
5.00%
Net exports, Fixed Capital Expenditure and Final Consumption Expenditure as a % of GDP
NET EXP
CONS(rhs)
FIXED CAPEX
CHF 3m Libor and Growth in CPI

4 3
CHF 3m LIBOR 1 CPI YoY
-1
-2
Monthly Growth in Money Aggregates

60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2001 01 -10.00% -20.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2001 01 M1 YoY
2002 01
2003 01
2004 01
2005 01
2006 01
2007 01
2008 01
2009 01
2010 01
2011 01
M3 YoY
2002 01
2003 01
2004 01
2005 01
2006 01
2007 01
2008 01
2009 01
2010 01
2011 01
EUR/CHF Exchange Rate Since Mid-2002

1.8 1.7
1.6
1.5
1.4
1.3
1.2
1.1
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 negative again in Q1 2010 and has stayed negative every 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 aggregates since the start of 2008 inflation has been non-existent. The last data point for CHF 3m Libor (August) was 0.005%.
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 EUR and other foreign currencies. 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.
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 SNB from CHF 30 billion to CHF 200 billion. Its aim was for a three-month Libor as close to zero as possible, narrowing the target range for the threemonth Libor from 0-0.75% to 0-0.25%. The market started to take notice and the EUR/CHF began trending away from parity.
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 this minimum 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 deflationary development. It added that if the economic outlook and deflationary risks so require, the SNB will take further measures.
EUR/CHF Exchange Rate YTD

1.35
1.3
1.25
1.2
1.15
1.1
1.05
SNB begins making statements about supplying liquidity www.valuhunteruk.com
SNB targets EUR/CHF minimum EUR/CHF rate of 1.20
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 and without 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.
What does this mean and where could it go wrong?

If the SNB is successful, then this will make business far easier for Swiss 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. Is this a parallel? What possible road blocks are there? 1. Competitive devaluation. The most worrying would be a large depreciation of the EUR. Perhaps unlikely with hawkish central bank. 2. Inflation or faster than expected growth in the second half of the year. 3. The market for questions the SNB commitment. After all, the liquidity the SNB is providing is extraordinary.
Huegli Holding AG
HUE:SW
Introduction
Huegli specializes in the creative development and efficient production of foods in the convenience segment, primarily comprising 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-finished product such as flavourings), and Health and Natural Food. Huegli has production facilities in Switzerland, Germany, Czech Republic, Italy and the UK.
Sales by Division
Food Service Private Label Industrial Foods Health & Natural Food
Sales by Country
Germany Switzerland/ Rest of Western Europe Eastern Europe
Share price since 2004

800.00 700.00
600.00
500.00
400.00
300.00
200.00
100.00
0.00 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
Financials
40.00 35.00 30.00 25.00 20.00 200.00 15.00 10.00 5.00 2000 2002 2004 2006 2008 2010 150.00 100.00 50.00 30.00% 25.00% 20.00% 2.0x 2.5x 450.00 400.00 350.00 300.00 250.00 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 is strong and leverage is falling.
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.
15.00% 10.00% 5.00% ROE 0.00% 2000 -5.00% -10.00% -15.00% -20.00% 0.0x 0.5x 2002 2004 2006 2008 2010 1.0x ATO (rhs) 1.5x RNOA PM
Valuation
Historical Price to Book
2.50
Price Shares Outstanding (m) Market Cap (m) Debt Cash Enterprise Value EV per Share Revenue EBIT Net Income Equity FCF P/S P/B P/E P/FCF EV/EBIT
590.00 0.48 282.75 79.45 8.59 353.61 737.87 364.47 37.19 27.36 113.01 12.83 0.78x 2.50x 10.3x 22.0x 9.51x
2.00
1.50
1.00
0.50 2007 2008 2009 2010
15.00 13.00 11.00 9.00 7.00 5.00
Historical Price to Earnings
2007
2008
2009
2010
Kudelski SA
KUD:SW
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 Division
Digital Television Public Access Middleware & Advertising
Sales by Country
Switzerland USA France Italy Germany UK Brazil R.O.T.W
10.00
20.00
30.00
40.00
50.00
60.00
0.00 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
Financials
180.00 160.00 1,000.00 140.00 120.00 100.00 600.00 80.00 60.00 40.00 200.00 20.00 2000 2002 2004 2006 2008 2010 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 400.00 800.00 EBIT Net Income Revenue (rhs) 1,200.00
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% and Middleware & Advertising earned -5%. The company is conservatively financed with a NFO/CSE of 0.54x
3.0x 2.5x 2.0x RNOA 1.5x 1.0x 0.5x 0.0x 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.
Valuation
Price Shares Outstanding (m) Market Cap (m) Debt Cash Enterprise Value EV per Share Revenue EBIT Net Income Equity FCF P/S P/B P/E P/FCF EV/EBIT 8.15 48.74 397.24 553.64 275.48 675.40 13.86 1,069.34 110.01 66.68 418.70 105.76 0.37x 0.95x 5.96x 3.76x 6.14x

5.00 4.00 3.00 2.00 1.00 0.00 2007 2008 2009 2010
Bossard Holding AG
BOS:SW
Introduction
Bossard Group is a global fastening technology and logistics company. The company also offers worldwide sales, technical and engineering support, and inventory management. Employs 1500 employees in more than 50 locations worldwide. Every year, more than 20 billion fasteners leave the warehouse in Zug, Switzerland.
Sales by Continent
Europe America Asia
100.00
120.00
140.00
160.00
180.00
20.00
40.00
60.00
80.00
Financials
50.00 45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 2005 2006 2007 2008 2009 2010 100.00 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2005 2006 2007 2008 2009 2010 1.6x 1.6x 1.5x 1.5x 1.4x 1.4x 1.3x 1.3x 1.2x PM RNOA ROE ATO (rhs) 300.00 200.00 500.00 400.00 EBIT Net Income Revenue (rhs) 700.00 600.00
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 to changes in the product mix and more effective procurement. Personnel expenses increased sharply.
Capital expenditure also didnt increase as fast as sales leading to an improvement in asset turns. The company is conservatively financed with NFO/CSE ratio of 0.14x Interims showed the same trend. Rapid sales growth combined with slower cost growth leading to improved margins.
Valuation
2.00
106.00 2.97 315.02 59.77 20.33 354.46 119.27 477.61 47.27 44.93 177.71 21.24 0.66x 1.77x 7.01x 14.83x 7.50x
1.60
1.20
0.80
0.40 2007 2008 2009 2010

12.00
9.00
6.00
3.00 2007 2008 2009 2010
Forbo Holding AG
FORN:SW
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. The company has production and distribution facilities in 41 countries worldwide and 47 pure sales organizations in 35 countries.
Sales by Division
Flooring Bonding Movement
Sales by Region
North,Central and South America Asia/Australia/Africa Western Europe Southern Europe Scandinavia Eastern Europe
100.00 500.00 600.00 700.00 800.00
200.00
300.00
400.00
Financials
400 300 2,000 200 100 2000 -100 500 -200 40.00% -300 30.00% 2.5x 20.00% 10.00% 0.00% 2000 -10.00% -20.00% -30.00% 0.5x -40.00% -50.00% 0.0x 1.0x 2002 2004 2006 2008 2010 1.5x 2.0x RNOA PM ROE ATO (rhs) 3.0x 2002 2004 2006 2008 2010 1,500 EBIT Net Income 1,000 Revenue (rhs) 2,500
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 Flooring described as not meeting expectations. Forbo is conservatively financed with NFO/CSE ratio of 0.16x.
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.
Valuation
Price Shares Outstanding (m) Market Cap (m) Debt Cash Enterprise Value EV per Share Revenue EBIT Net Income Equity FCF P/S P/B P/E P/FCF EV/EBIT 390.00 2.36 920.01 266.70 120.10 1,066.61 452.14 1,789.70 185.90 163.30 724.40 150.40 0.66x 1.76x 7.01x 14.83x 7.18x

4.00 3.00
2.00
1.00
0.00 2007 2008 2009 2010
Rieter Holding AG
REIN:SW
Introduction
Rieter is supplier of machinery and components for short staple fiber spinning mills. The company was previously in the automotive components supply business (now Autoneum Holding) but this was spun off in the first half of the current fiscal year. The company operates in two divisions:
1. 2. Spun Yarn Systems - Machines Premium Textile Components - Components
Sales by Division
Spun Yarn Systems
Sales by Country
Europe Asia (inc. Turkey) North America
Premium Textile Components
Latin America Africa
100
200
300
400
500
600
700
800
0 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
Financials
Experiencing extremely strong demand from emerging markets. In CHF terms, sales in H1 2011 were up 66% and 73% in local currency terms compared with H1 2010. Strong financial position with NFO/CSE of 0.32x. Investing heavily in the business with capex of CHF 12.2m in H1 2011 focused in Spun Yarn Systems. Significant margin improvement and sales growth in Spun Yarn Systems. Margin improvement and stronger new order growth in Premium Textile Components.
Valuation
Price Shares Outstanding (m) Market Cap (m) Debt Cash Enterprise Value EV per Share Revenue EBIT Net Income Equity FCF P/S P/B P/E P/FCF EV/EBIT 149.50 4.67 698.46 278.70 428.50 548.66 117.44 870.40 75.70 82.90 360.40 73.40 0.80x 1.94x 8.43x 9.52x 7.25x
Daetwyler Holding AG
DAE:SW
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. 2. 3. 4. Technical Components Pharma Packaging Cabling Solutions 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
100.00
10.00 60.00 70.00 80.00 90.00
20.00
30.00
40.00
50.00
Financials
140.00 120.00 100.00 80.00 60.00 800.00 40.00 20.00 2000 -20.00 -40.00 2002 2004 2006 2008 2010 600.00 400.00 200.00 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2000 -5.00% 2002 2004 2006 2008 2010 0.0x 1,600.00 1,400.00 1,200.00 1,000.00 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 significantly lower personnel costs as a percentage of revenues. The company has a net cash position of roughly CHF 20m.
3.0x 2.5x 2.0x 1.5x ROE 1.0x 0.5x ATO (rhs)
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 company experienced strong sales growth but had problems due to higher raw materials prices and the strong CHF.
RNOA PM
Valuation
14.00
48.00 15.45 741.82 78.20 109.80 710.22 45.96 1,319.50 127.90 98.20 584.20 109.80 0.56x 1.27x 7.55x 6.76x 5.55x
12.00 10.00 8.00 6.00 4.00 2.00 0.00 2007 2008 2009 2010

2.00 1.50
1.00
0.50
0.00 2007 2008 2009 2010
Conclusions
The most interesting companies here are Hugli, Forbo, Bossard and Datwyler. The detail in each case is slightly different but all three are strong companies that are suffering primarily from the strong CHF. However, Kudelski and Rieter represent the potential risks of investment. With Kudelski, there is a strong core business and weak peripheral businesses. We could make the comparison with Forbo or Datwyler. With Rieter, the company is benefitting tremendously from growth in developing markets. The implication is that an investment in Rieter is essentially a leveraged position on emerging market growth. The comparison here could be with Bossard.
Appendix: Valuation Comparisons

P/E P/B EV/EBIT Hugli Kudelski 10.30x 5.96x 2.50x 0.95x 9.51x 6.14x
12.00x 10.00x 8.00x P/E 6.00x 4.00x 2.00x 0.00x Hugli Kudelski Bossard Forbo Rieter Datwyler P/B EV/EBIT
Bossard 7.01x 1.77x 7.50x
Forbo 7.01x 1.76x 7.18x
Rieter Datwyler 8.43x 7.55x 1.94x 1.27x 7.25x 5.35x

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Swiss Exporters

What is the purpose of this presentation?

YoY Growth in GDP, Consumption and Fixed Capital Expenditure

GDP 0.00% CONS FIXED CAPEX

YoY Growth in Exports, Imports and Net Exports

CHF 3m Libor and Growth in CPI

CHF 3m LIBOR 1 CPI YoY

Monthly Growth in Money Aggregates

EUR/CHF Exchange Rate Since Mid-2002

SNB begins strengthening resolve August 2011

SNB targets EUR/CHF directly

EUR/CHF Exchange Rate YTD

SNB begins making statements about supplying liquidity www.valuhunteruk.com

SNB targets EUR/CHF minimum EUR/CHF rate of 1.20

Latest SNB statement 15 September

What does this mean and where could it go wrong?

Share price since 2004

0.50 2007 2008 2009 2010

15.00 13.00 11.00 9.00 7.00 5.00

Historical Price to Earnings

Share price since 2004

Historical Price to Book

Share price since 2004

0.40 2007 2008 2009 2010

Historical Price to Earnings

3.00 2007 2008 2009 2010

100.00 500.00 600.00 700.00 800.00

Share price since 2004

Historical Price to Book

0.00 2007 2008 2009 2010

Premium Textile Components

Latin America Africa

Share price since 2004

10.00 60.00 70.00 80.00 90.00

Share price since 2004

Historical Price to Book

0.00 2007 2008 2009 2010

Appendix: Valuation Comparisons

Bossard 7.01x 1.77x 7.50x

Forbo 7.01x 1.76x 7.18x

Rieter Datwyler 8.43x 7.55x 1.94x 1.27x 7.25x 5.35x

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