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Light at the end of the tunnel

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Mid-year recovery
Two and a half years after the onset of the recession, we are beginning to see light at the end of the tunnel. The low point of the economic cycle was reached in mid-2009 and, since the first quarter of 2010, there has been a welcome change in the trend of orders received. This recovery has become even more marked during the 2nd quarter. Halfway through the year, the end of the crisis appears to be confirmed, and it is increasingly probable that the situation will be fundamentally different in 2011. If so, the Tornos group will feel the full benefits of the crisis strategy implemented since January 2008, the main aim of which has been to avoid dismantling our industrial and commercial capability, thereby enabling business activity to resume immediately once the first signs of recovery appeared. A number of factors suggest that this phase is now starting. In particular, high capacity usage by the majority of our clients indicates that industry is close to the start of an investment cycle which, during 2011, should bring business levels close to those seen in 2007. The only blot on this otherwise encouraging landscape is the euro/Swiss franc exchange rate which is penalizing Swiss exporters in European markets and depressing their results.
In the first half of 2010, the group booked orders worth CHF 96.6 million, CHF 43.4 million of which were in the first quarter and CHF 53.2 million in the second. This represents an increase of 124.7% over the same period in 2009 (when orders were CHF 43.0 million).

Results improving
With a slight time lag, the sales figure is a reflection of orders received. Turnover totalled CHF 25.8 million and CHF 43.9 million in the first and second quarters respectively. First-half sales therefore came to CHF 69.7 million which, in comparison to last year (CHF 59.5 million), represents an increase of CHF 17.3%. Although business levels are improving, they remain low in absolute terms, and production capacity usage was no better than around 45% in the first six months. Hence, although some improvement is discernible, first-half results are heavily negative, with a net loss of CHF 14.2 million compared to CHF 15.5 million in the same period last year. At the operating level (EBIT) the loss was CHF 12.9 million versus CHF 16.6 million in the first half of 2009, while operating cash flow for the first six months was CHF 5.5 million positive compared to a CHF 21.2 million cash outflow last year. The Group's net debt stands at CHF 22.3 million, a reduction of CHF 2.3 million compared to 31 December 2009. As at 30 June 2010, equity of CHF 116.4 million accounted for 60% of the balance sheet total of CHF 194.1 million.

Outlook
Although visibility is still poor, and the possibility of a "double-dip" recession caused by the euro crisis cannot be ruled out, 2010 sales should reach CHF 150 million. Thus, if the probable recovery is confirmed, it will only have a minor impact on results for the current financial year because the benefit will only be felt in the fourth quarter. Sales of CHF 150 million would imply annual average capacity utilization of around 50%, which would once again trigger sharply negative results for full-year 2010.