MEM industries: Strong upturn in sales and orders, but earnings situation still unsatisfactory :: Swissmem - Switzerland's Work Place and Think Tank

MEM industries: Strong upturn in sales and orders, but earnings situation still unsatisfactory

01.03.18

The situation in the Swiss mechanical and electrical engineering industries (MEM industries) is better than it has been for a long time. Sales in 2017 were up 9.4 percent on the year-back figure. New orders and exports rose by 7.5 and 5.5 percent respectively compared to 2016. The only fly in the ointment is the earnings situation, which 44 percent of companies making up the MEM industries still report to be unsatisfactory. These companies now need a protracted period of growth with significantly improved margins so that they can compensate for the margin and asset erosion of recent years, which in some cases was very substantial. Nevertheless, companies’ expectations, the improved Swiss franc-euro exchange rate and the good economic climate in key markets all suggest that business will continue to grow in 2018.

New orders received by the Swiss mechanical and electrical engineering industries (MEM industries) in 2017 increased by 7.5 percent on 2016. The fourth quarter of 2017 even saw a 29.4 percent year-on-year rise in orders. However, this stems from a strong underlying baseline effect, since the equivalent quarter of 2016 was very weak. Nevertheless, the new orders index reached its highest level since 2008 during the final quarter of 2017. Sales also gained significant momentum compared to the same period last year, with a 9.4 percent rise. Fourth-quarter growth in 2017 was 12.8 percent compared to the year-back period. The upward trend in orders and sales is benefiting large companies as well as small and medium-sized firms.

 

The large influx of new orders in recent months is impacting on capacity utilization at factory floor level. According to the Swiss Economic Institute (KOF), utilization stood at 90.6 percent in January 2018, substantially above the longstanding average of 86.4 percent. Headcount in the MEM industries also climbed during the last year, rising to 322’100 people, a gain of 4’500 jobs compared to 2016.

 

Rise in exports in all regions

Exports by the MEM industries increased by 5.5 percent in 2017 to CHF 66.7 million, with all sales regions performing well. Exports to the EU were up 5.9 percent, those to Asia 3.4 percent. However, the greatest growth was in exports to the USA, which gained 7.4 percent. The positive trend extended to exports of all important product groups. Compared to 2016, exports of metals and metal products rose by 12.6 percent, electrical engineering and electronics exports by 4.7 percent, precision instrument exports by 4.3 percent, and machine tool exports by 2.3 percent.

 

Overall the position of the Swiss MEM industries is better than it has been for a long time. If the recent improvement in the Swiss franc-euro exchange rate and the good economic climate in key markets prove to be sustainable, the uptrend in the MEM industries could well continue in the months ahead. Companies in the MEM industries are optimistic in their outlook. According to the latest Swissmem survey, 53 percent of companies anticipate an increase in orders from abroad in 2018, while just 10 percent fear a decline. This optimism is shared by large companies and SMEs alike.

 

Protracted period of growth needed

This only thing that still clouds this positive picture is the persistently unsatisfactory earnings situation. This is mainly because the Swiss franc did not start to weaken against the euro – and therefore margins did not begin to improve – until mid-2017. When Swissmem surveyed member companies in January 2018, it found that 15 percent of companies were in the red at EBIT level when looking at the year as a whole. A further 29 percent only achieved inadequate margins of between zero and five percent in 2017. This means that the earnings situation of 44 percent of companies in the MEM industries is still unsatisfactory. Although there has been a slight improvement since 2016, the current survey shows that 21 percent of companies made a loss in 2016 and the EBIT margin of a further 30 percent languished below five percent. The results of the survey show that it will take more than a few months’ upturn to compensate for the margin and asset erosion of recent years, which in some cases was very severe. What the MEM industries need now is a protracted period of growth with significantly better margins that will enable them to invest more in the future again.

 

Europe set to remain key sales market in the long term

The MEM industries’ export figures once again underscore the major importance of the EU market. Despite the strength of the Swiss franc, the proportion of exports destined for the EU has risen from 57.7 percent to 59.6 percent since 2015. Although exports to the USA have increased by a greater amount in relative terms (7.4 percent compared to 5.9 percent), the growth of exports to the EU is higher in real terms by a factor of 3.7 (growth of exports to the EU: CHF 2.222 billion; growth of exports to the USA: CHF 0.599 billion). Even if other markets become more important for the MEM industries in relative terms, the EU Single Market will remain the most important in the long term. For this reason, Swissmem is advocating that Switzerland should enter into a framework agreement to put its relations with the EU on a new footing that is sustainable in the long term. It is also the reason why Swissmem vehemently opposes the Swiss People’s Party’s «termination» initiative, which will unnecessarily jeopardize access to the EU Single Market, an area where Switzerland currently enjoys virtually no discrimination.

 

Attachements:

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For further information please contact:

Ivo Zimmermann, Head of Communications

Tel. +41 44 384 48 50 / Mobile +41 79 580 04 84

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Philippe Cordonier, Communications Manager,

French-speaking Switzerland

Tel. +41 21 613 35 85 / Mobile +41 79 644 46 77

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Contact

Ivo Zimmermann

Head of Communications

 

Telephone +41 44 384 48 50

Mobile +41 79 580 04 84

i.zimmermannanti spam bot@swissmemanti spam bot.ch