Recession-busting profits defy economic gloom

Some Swiss company profits are going up Keystone

A pair of contrasting Swiss firms delivered a flicker of hope with positive results that suggest not all enterprises are being swallowed by the economic downturn.

This content was published on February 17, 2009 minutes

Lift makers Schindler and flavours and fragrances producers Givaudan offered a rare crumb of comfort on Tuesday to a market dominated by depressing financial and manufacturing news.

Schindler announced a record profit of SFr634 million ($546.5 million) last year compared with SFr571 million in 2007. Givaudan said it expects to outgrow the market after posting an 18 per cent rise in profits to SFr111 million despite sizeable restructuring costs.

Both companies continue to face significant challenges in continually deteriorating markets, but analysts believe they are well placed to sit out the storm.

Schindler managed to turn out a healthy profit despite being virtually shut out of the Japanese market since a fatal accident involving one of its lifts in 2006.

The firm's success can partly be put down to sales generated from orders that were placed before the economy started to wobble, according to Bank Vontobel analyst Serge Rotzer.

Not all luxury

Orders were down 11 per cent in the fourth quarter of 2008 and that is bound to affect future revenue streams. But Rotzer believes the company's ongoing efficiency drive and business mix could provide a buffer against the downturn.

"Around 50 to 60 per cent of their business is in servicing, which is not cyclical and generates high margins," Rotzer told swissinfo. "They have improved the quality of their order intake to include more high rise lifts and have implemented a programme to improve the efficiency of their service staff."

"If they can continue to improve margins as they intend to do then profits will not necessarily be hit by declining orders," he added. Schindler is also sitting on a cash reserve pile in excess of SFr1 billion

On the face of it, providing new fragrances for the perfume industry might put Givaudan in a precarious position as consumers cut down on luxury products. Added to that, the company is still paying integration costs for its SFr2.8 billion acquisition of Quest in 2007.

But analysts were disappointed by a mere 18 per cent growth in profit in 2008, with some hoping for a boost of 50 per cent or more.

More good news?

Zurich Cantonal Bank analyst Daniel Bürki said that such high expectations were driven by the overall strength of the company and the market in which it operates.

Givaudan develops flavours that form key ingredients in food product ranges produced by such giants as Unilever. Food is traditionally one of the least affected markets in a cyclical downturn, and demand for certain cosmetics is expected to remain constant.

"People still need shampoos and deodorants. They might buy cheaper, but they will continue to buy," Bürki told swissinfo.

Swiss food giant Nestlé is another company expected to buck the trend of red figures when it announces its results on Thursday. In August, the company predicted organic growth of at least 7.4 per cent for the full year – the level seen in 2007.

swissinfo, Matthew Allen

2008 results

Schindler net profit: SFr634 million (SFr571 million in 2007)

Consolidated operating profit (Ebit): SFr889 million (SFr830 million)

Order backlog: SFr 6.4 billion (down 5.3%)

A SFr2 per share dividend has been proposed (SFr1.60 in 2007)

Givaudan net profit: SFr111 million (SFr93 million in 2007)

Operating income: SFr379 million (SFr322 million)

A SFr20 per share dividend has been proposed (SFr10 in cash and the remainder as shareholders' warrants)

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