POLYTEC PASSION CREATES INNOVATION

“… HAVE ACHIEVED A GOOD STARTING POSITION IN AN EXTREMELY DIFFICULT ENVIRONMENT …”

Interview with the members of the board of directors

A conversation with the members of the POLYTEC HOLDING AG board of directors, Markus Huemer, Peter Haidenek, Heiko Gabbert and Peter Bernscher, regarding successful crisis management and organisational transformation, technological diversity, systematic innovation, entry into new markets and a cautiously optimistic future outlook.​​​​​​​

 


Mr Huemer, while its clear that no one could have foreseen the corona crisis, you already began to undertake capacity adjustments and structural optimisation two years ago.
Does this mean that you have coped with COVID-19 better than others? 
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​​​​​​​Markus Huemer: We were at least better prepared because we had decided at an earlier stage to adjust our capacities and consolidate our production. The background to this decision was provided by the slow downturn in the automotive industry since the diesel scandal, the related tension with regard to the competitive situation and the predictable market changes triggered by a range of political regulations. By the time corona broke out we had already closed three plants and were in negotiations regarding the possible shutdown of another two. We also had a task force in place for precisely this purpose and this permitted speedy realisation. The fact that unfortunately we had experience with short-time working was also of assistance.​​​​​​​


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What concrete measures were implemented?
Did further plant closures take place and were personnel numbers reduced? 

 

Markus Huemer: ​​​​​​​Corona forced us to systematically and rapidly push ahead the imminent closures. Moreover, we had to close an additional plant in Germany. The fact that four shutdowns were completed fully within twelve months represents a notable organisational achievement because each closure meant the transfer of various production processes to other locations within a tight schedule. We also made very rapid progress with the adjustment of our cost structure to both the new sales revenue level and the competition-related increase in cost pressure. Unfortunately, during the past year we also had to reduce our workforce by about 800, but conversely managed to thus put 3,600 jobs on a solid footing. In this connection, the short-time working models in both Austria and Germany helped us greatly. Even though the plant closures consumed a vast quantity of resources and caused additional costs, we were nonetheless able to markedly reduce our debt level despite the pandemic. The settlement – despite corona – of a number of sizeable projects which we had pre-financed in earlier years helped in this regard. Fortunately, we were not dependent upon governmental support loans, which I am not alone in regarding as toxic. This is because in the medium-term they will either lead to considerable burdens for the companies, or competitive distortions.In retrospect, our crisis management, which was coordinated by an effective cross-locational emergency committee, proved to be highly successful. In addition, the shared challenge posed by corona and the focus on the containment of its effects strengthened the solidarity within our workforce. In the final analysis, this represented a positive experience and also a motivation to accelerate the massive organisational changes throughout the entire group.


What were the effects upon the industry per se?
For example, has the corona crisis speeded up market consolidation and were, or are, opportunities for acquisitions available? 

 

Markus Huemer:  As we traditionally target our acquisition activities on companies in economic difficulties, crises have frequently offered POLYTEC potential in this direction. However, owing to the various supportive measures, this has so far not applied to the extent that we expected during the corona crisis. Nevertheless, we constantly monitor the market and the general opinion is that the second half of 2021 will show how the obligations from loans and deferrals will be handled, as the related problems have merely been postponed. This means that in the foreseeable future chances may well be available to again bring our return on capital up to its usual level by means of acquisitions. Whatever the case, for me this remains an extremely important issue.

 

 


Has the acquisition of Wayand in 2019 proven worthwhile?
And, conversely, why have you sold off the Industrial Division?

 

Markus Huemer: The Wayand acquisition was important in order to consolidate our position in the Painted Exterior Product Line. We were able to thus capture two important target customers to which we previously had virtually no access. However, corona has meant that the integration of the company has not progressed as quickly as planned and the result has not yet reached the set target. Nevertheless, the objective of strengthening our clientele position has already been achieved and the decisive task now is to move on successfully from this point and together with our customers attain the anticipated economic successes. The sale of our Industrial Business Unit was somewhat more accidental, although equally a highly positive coincidence. In spite of repeated expressions of interest from potential buyers, we had never considered a sale even though the Business Unit was managed independently of the rest of the POLYTEC GROUP and without notable synergy effects. Now, the approaching retirement of my mother has provided a reason to study the option of a sale more closely. Incidentally, this will have absolutely no effect upon our nonautomotive strategy.
 

 


How did demand and production develop in the individual Product Lines?
Were there ever problems with your supply chain?

 

Heiko Gabbert: Overall the situation in 2020 was extremely volatile. In spring, virtually our entire clientele implemented shutdowns in one form or another. Some plants closed suddenly and call- offs were either cancelled or subjected to changes at short notice. The exception was the manufacture of logistics boxes for IFCO, which, owing to the boom in the food industry and the system relevance of the product, continued practically around the clock. Naturally, for us this high level of volatility meant constant, detailed adjustments to the production at all of our locations, and at the same time, the work closures were still in progress. In addition to various new start-ups, we had to deal with production transfers involving 35 systems and 270 toolings, which had to be implemented at the recipient plants in minimum time. However, thanks to the central guidance of all our plants in the critical phase, our crisis management also proved to be highly successful in this respect. During 2020, the supply chain for raw materials and purchased parts remained remarkably stable. However, the avoidance of any significant bottlenecks actually stemmed from the fact that we took preventive measures and planned alternatives for all important products. Ultimately, this meant that we were able to deliver whenever our customers had not resorted to plant shutdowns and reduced call-offs.

 

 


Against this backdrop, what do the sales and earnings for 2020 look like?

 

Markus Huemer: A fall in sales revenues of around 17 per cent, an EBIT margin of 2.5 per cent and six plant closures in two years are certainly no reason to be happy. But when I reflect upon the situation in the middle of 2020, we can be satisfied with the result and in particular our liquidity management For despite the various special expenses related to production transfers and plant closures, we attained the guidance of a balanced operating result with the deconsolidation of the Industrial Business Unit as an extra. After negative EBIT of minus EUR 7 million in the first six months of the year, only genuine optimists would have bet on that. Fortunately, the fourth quarter proceeded better and in addition the plant closures improved our fixed cost structure and reduced the personnel expenses. Nevertheless, in spite of all these factors, one must also take into account the fact that our employment of capital is designed for higher sales and that without further activities, even with solid EBIT margins, we will be unable to achieve our usual return on capital. In particular, acquisitions could contribute to an improvement in the ratio of sales to capital employed. Therefore, the conclusion can be drawn that in an exceptionally difficult environment we have achieved a good starting position, but much remains to be done.
 


Peter Bernscher: Also from a market perspective, we have have a very problematic year behind us during which, in terms of an annual comparison, European vehicle production fell by around a quarter. Our sales in the same period only declined by roughly 17 per cent and the new Smart Plastic Applications Product Line actually achieved growth. In addition, we also succeeded in achieving the highest order intake in the past four years, which means that we have come through the massive challenges of 2020 well and at the same time have already laid solid foundations for success in the coming years. 

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In your opinion, how will the market develop in the “post-corona era”?
Where do the main threats lie and where is the greatest potential to be found?

 

Peter Bernscher:Since October 2020 we have already observed an upward trend with regard to the demand of our automotive customers, which has further consolidated in 2021. At present, it is difficult to assess the degree of influence that the corona pandemic will finally exert on our business in 2021. In addition, we are currently seeing an increasing number of bottlenecks in the raw material markets and huge price rises. Nonetheless, a basic sense of optimism with regard to a further market recovery predominates. Experts assume that from 2024 onwards, European car production will return to the level of 2019.

We aim to achieve growth that is disproportionate to this dynamic market upturn by means of an intensified focus on future technologies. Our efforts to develop product solutions in the field of alternative drives and mobility concepts have already started to bear fruit and will more than compensate for the decline in sales revenues from the conventional powertrain. In turn, we see attractive growth possibilities in the Smart Plastic Applications Product Line as emanating from the energy, green technology and logistics systems focus segments. Moreover, the pandemic has triggered a parallel acceleration of the trend towards digitalisation, which has extended to market development and the cultivation of customer relationships. We have the suitable organisation and innovative tools for this situation and overall we possess diversity and are implementing our Product Line strategy at speed. The most important buzzwords in this connection are the POLYTEC SOLUTION FORCE, system integration, lightweight design and new materials.

 

 


Has corona influenced your strategic orientation?
After such a sharp break, it must be virtually impossible to avoid assessing the situation ...

 

Markus Huemer: Corona does not mean a reorientation, as we have simply increased our pace and insofar have used the crisis as an opportunity. Our past financial reports were entitled, “Moving Technologies”, “Meeting Challenges. Creating Perspectives.”, “Transforming. Dedicated. Prepared.” and lastly, “POLYTEC SOLUTION FORCE”. As far as our course is concerned, these titles speak for themselves. In recent years we have taken numerous steps in response to market transformation. The core of these initiatives was to network our remarkable technological diversity even more closely and to utilise the resulting potential as a USP. Essential prerequisites in this connection were the standardisation of process sequences and fundamental organisational changes, which we initiated in recent years and that have now been largely concluded. These new standards also form the basis for the comprehensive digitalisation of all company procedures.Corona has cost us more than a year with respect to this digitalisation initiative, but conversely, the dynamics of the past twelve months have greatly accelerated the organisational transition away from a technological focus to the ONE POLYTEC concept and the merger of our original four Business Units to form two Plant Clusters.

 

Peter Bernscher: As a result of the horizontal amalgamation of sales, project management and development in eight Product Lines with the aim of convincing as the POLYTEC SOLUTION FORCE, we have completed an important organisational step forward. We were able to implement this change at very high speed owing to the fact that its fundamental aspects had already been determined prior to the corona crisis. In important product segments, we belong to the top 3 in Europe, and this positioning, as well as an intensified focus on innovation guarantee our future growth. This is being supported by the integration of fresh talent into our teams, thus ensuring that the organisational transition is being accompanied by the necessary competence.

 

 


With all these measures you embarked upon a fundamental organisational transformation.
​​​​​​​Has this process now been completed and what effect have these changes had to date?

 

Markus Huemer: By and large, the transformation has been completed, but naturally numerous details remain to be dealt with. As already stated, today our organisation differs totally from that of only a few years ago. In a structural regard, we have more or less reached our goal because we launched the transitional process in 2015 and it was already well advanced before corona, which actually served to accelerate realisation still further. Owing to the crisis, the plants met their targets with even greater speed and now standards, processes and systems must be implemented in full, which is a task that continues to pose a major challenge to our team. Centralised control of important issues through a pool of specialists, who are available to the entire group, has proven to be highly effective and guarantees improved access and faster reactions. 


Heiko Gabbert: I sense a heightened degree of acceptance amongst our employees because the clearly apparent changes to market conditions during last year have made the necessity for change clearly visible. The greater efficiency of the new, central operative areas is also recognisable and the use of synergies in all the specialist technical areas has intensified considerably. Equally, the flexible use of expert knowledge across all plants has resulted in faster and better knowhow transfers. In short, ONE POLYTEC is increasingly making its presence felt.

 

 


Technological diversity and innovation have been central factors in POLYTEC’s success since time immemorial.
What activities and new developments are there in these areas and what role does e-mobility play?

 

Peter Bernscher: ​​​​​​​Technology diversity will continue to be a central success factor for POLYTEC in years to come. With our strategic repositioning, we have largely accounted for the shifts in our environment. Our product portfolio is also changing, in evolutionary rather than revolutionary fashion. The focus on all of the customer segments that can be allotted to the topic of e-mobility has been intensified and new, creative product solutions are in the pipeline. In this regard, we have a presence in the powertrain, outer skin, underbody and structural part areas, as well as in the segment of conventional motorised vehicles. Demands may change, but our solution competence remains unaltered and we can build on the experience gathered in past decades. The world of trucks is also in transition and here we can reduce wind resistance with our aerodynamic outer skin solutions, integrate functions through lightweight design concepts and increase the cost effectiveness of the end product. Plastic will also remain in demand as a material in the future and will contribute its share to the efforts being made to reduce the CO2 footprint.

 

 


Were there any new development projects or new Product Lines in 2020?

 

Peter Bernscher: As already mentioned, in 2020 we had the largest new order intake in recent years and in this connection enjoyed equal success with almost all of the Product Lines. However, I am particularly pleased by a major order for the fresh food logistics solutions area, the pinpointing of new application possibilities for fibre-reinforced composites in structural components and our contribution to the electrification of the European automotive industry through the integration of modern battery concepts in systematised underbody solutions. 


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How is commercial vehicle business developing and what is the outlook in the non-automotive area?
​​​​​​​Were you able to obtain interesting new contracts in 2020?

 

Peter Bernscher: During 2020, we saw both a large model in- and outflow the commercial vehicle segment and in general it can be said that demand in this area was under greater pressure than in the car market. In fact, sales to our key accounters were some 35 per cent down on those of the previous year. Nonetheless, incentives and the revival of the economy as a whole should also result in sizeable increases in sales in this field during 2021. While it is probable that in this segment combustion engines will remain dominant for longer than is the case with cars, alternative concepts such as the use of hydrogen are likely to begin to take effect at an earlier stage. The agricultural machinery business area developed in a positive manner and operated at the upper production capacity limit throughout the whole of 2020. In future, POLYTEC intends to step up its involvement specifically in this area and use to the full the product know-how developed for a major customer in other projects. It is precisely here that we aim to exploit our outstanding technological diversity. The non-automotive business area also demonstrated excellent performance. In 2021, we hope that a new product developed in-house especially for this segment will surprise. Moreover, areas such as new mobility, smart plastics, logistics and energy all promise interesting impulses for the future. We have a wealth of ideas in this field, which are far closer to our core business than the Industrial Business Unit, which was sold off in 2020.


How significant is the topic of sustainability, which as a result of lightweight design is quasi an innate part of your business, in internal day-to-day operations?
This is a thematic area in which customers and investors are also showing growing interest ...

 

Heiko Gabbert: We recently started to regularly evaluate and optimise our investments with respect to the related consumption of energy and resources and environmental impact. Energy recovery, efficient production and the optimised use of media that are essential to production are just some of the topics within this context. Primarily, we have not had a focus on short-term savings, but rather have been consciously searching for sustainability, although an economic advantage must also always exist. We see the complete production process as a chain and constantly scrutinise its individual links such as raw materials, energy, water and compressed air consumption from a holistic perspective. Measurement values are registered and analysed in targeted fashion and proven solutions are rolled out on a full-coverage basis. In this way, we endeavour to achieve continual improvement.

These initiatives add up to our contribution to climate protection. In 2020 we constantly measured our CO2 emissions in Scope 1 and Scope 2 pursuant to the Carbon Disclosure Project for the first time. In the coming years, we aim to continue to successively reduce our CO2 footprint. Our customers, who attach value to sustainable production, are increasingly demanding that we implement this improvement along with corresponding audits such as those regarding CO2 emissions. We are currently planning a major project for regenerative energy for 2021 and 2022 in the course of which photovoltaic systems are to be installed on the roofs of several plants. The concepts for this undertaking are on the verge of realisation.

 

 


​​​​​​​While we are on the topic of plants, what does your international footprint look like in connection with your new works in South Africa and your production facilities in China and the UK?

 

Markus Huemer: Last year, we closed four plants, but further extended our production footprint, as overall our follow the customer strategy has proven effective. In China, we can point to good performance, which is largely unaffected by corona, and are continually expanding our production capacities and what is a generally complex, technological portfolio. In spite of the crisis, sales revenues increased by 5.5 per cent during last year although they remained at a low level. As far as the UK is concerned, where we have made major investments in recent years, following a problematic start-up and the uncertainty created by Brexit, we are currently witnessing growing demand, which in view of the trend towards local value added is likely to increase still further. To this extent, Brexit may even have a positive impact upon our business.


Heiko Gabbert: Despite corona, the construction of our new plant in South Africa is proceeding according to plan. Clearly, due to the pandemic the building phase constituted something of a challenge, but we were nonetheless able to avoid sizeable delays. From the summer of 2021, the plant will start to manufacture parts for the volume car model of a European premium-class manufacturer, which will then be sold in the global market. In general, it can also be said that the plant closures and production transfers of the past 18 months have ensured optimum use of capacity at the remaining locations. Indeed, the positive effects have already been tangible since the beginning of the year.


Did you continue your investment programme for 2020 as planned, or was it reduced in view of the circumstances?
Are investments planned for the coming years and if so, which?

 

Peter Haidenek: Similar to the average between 2016 and 2019, for 2020 we planned investments of around EUR 45 million, but, at some EUR 14 million, remained roughly two-thirds below this figure. Owing to the economic situation, we simply had to focus on cash management and in addition there were delays due to short-time working and the uncertainty regarding our course of business. Against this background we revised our priorities and for reasons of caution delayed some planned investments for the future. Investments in IT and digitalisation were primarily affected along with non-essential replacement spending and the purchase of new machinery. A large part of these cuts will be compensated for in 2021 and in addition we will be investing around EUR 10 million for a new order with the result that the 2021 investment volume will again correspond with those of the years prior to corona. For the two subsequent years, we plan tangibly smaller amounts in order to reduce the comparatively high capital intensity of our business model.

 

 


Your digitalisation programme was delayed by corona, so how will it now proceed?

 

Markus Huemer: ​​​​​​​As mentioned previously, in recent years we have made intensive preparations for full-coverage digitalisation by means of massive infrastructure investments in our hardware and software standardisation. Among other results, in March 2020 this enabled us to switch to working remotely from one day to the next. With Microsoft Teams we already had a full-coverage solution available for video conferences and thus cross-location teamwork. The amalgamation of the organisation has brought an enormous enlargement of the inter-locational teams and in order to provide them with support, we are continually expanding the available technical possibilities. As mentioned, owing to corona we lost valuable time with regard to the further implementation of production-related digitalisation during the past year, but conversely we also developed new approaches. Nonetheless, in September we slowly resumed activities and at present all projects are in full working mode again. In particular, I see digitalisation as playing a decisive role in our long-term competitiveness, especially in high-wage countries.

 

 


What is the situation with regard to financing, capital employment and resources?
Do you have sufficient funding for possible acquisitions?

 

Peter Haidenek: The POLYTEC GROUP closed the past financial year with an equity ratio of around 43 per cent and cash and cash equivalents of EUR 90 million. Despite COVID-19, we were able to reduce our net debt from EUR 156 million to around EUR 106 million with the result that gearing improved markedly from 62 to 43 per cent. Moreover, the net debt to EBITDA ratio also improved slightly from 2.28 to 2.19. Incidentally, sufficient liquidity is already available for the repayment of a EUR 24 million tranche on a promissory note loan, which is actually due in September 2021. We are thus in a comparatively good financial position and dispose over a solid balance sheet structure. Therefore, possible acquisitions are entirely feasible and could be financed from the existing liquidity reserves. Our liabilities are subject to long-term hedging and we have no problems with regard to covenants. The fact that the short-term financing of working capital takes place via factoring has also proven to be an advantage over other companies.


Following a corona low in March 2020, your share has recovered to currently stand at roughly the level of the beginning of 2020.
Are you satisfied and how are you regarded by the capital market at present? Will there be a dividend?

 

Peter Haidenek: We are pleased that following the corona slump and the unpleasant surprise of a price of EUR 3.12 in March 2020, our share has clearly gained ground and that its liquidity has also improved markedly. Nonetheless, we cannot be satisfied with the current situation because as the capital market agrees, the fair value of our share should be above the carrying value, when at present our market capitalisation remains below it. Therefore, we are endeavouring to underpin an appropriate value gain by the POLYTEC share with positive group development. For 2020, the Board of Directors and the Supervisory Board will recommend a dividend of 30 cents per share to the Annual General Meeting.

 

 


In closing, your outlook for 2021?

 

Markus Huemer: At the moment, the turbulence in the materials market is presenting us with new challenges in the short term, although from a current perspective call-offs and the sales revenue trend give reason for a positive mood. The demand with regard to both cars and trucks is solid and this should lead to good use of capacity. However, we have to wait and see if the supply bottlenecks and possible COVID-19 effects could temporarily weaken this upward tendency. With the structural and organisational changes of recent years, we have created a sound basis for the transformation of higher sales revenues and improved use of capacity into corresponding results. Whatever the case, we will continue to work with total commitment towards this goal, as well as targeted access to new product and application areas and customer groups. With ONE POLYTEC and the POLYTEC SOLUTION FORCE​​​​​​​ we are ideally equipped to succeed.