Swiss firms fight strong currency
2018-11-19

Photo by Ems Domat Ems site

It has been a year of belt-tightening in Switzerland due to adverse exchange rates, writes David Eldridge in this feature in the December issue of Plastics News Europe.

In January, Switzerland’s central bank abruptly ended its policy of pegging the Swiss franc at 1.20 to the euro, sending a shock wave through the Swiss corporate landscape. The immediate effect was an increase in the Swiss franc’s value by about 30%. The Swiss currency peaked at CHF 1.03 to €1.00 in April and was trading in a steady range of CHF 1.08-1.09 from September to November.

How have Swiss companies in the plastics sector reacted to this currency shock? For corporations domiciled in Switzerland, the sudden strengthening of their domestic currency is a problem, especially if they have Swiss manufacturing operations with export sales.

Adval Tech Group reacted quickly to the situation. In January, the injection mould and tool-making group announced it was adjusting capacities and cutting 17 jobs at Styner+Bienz FormTech, its tool-making and metal stamping business with plants in Uetendorf and Niederwangen in Switzerland. The company said this was because the strength of the Swiss franc was making it hard to get replacement orders for the sites, which export to EU countries.

Announcing its financial results for the first half of 2015 in August, Adval Tech said its 13% fall in total income to CHF 110.6m was due to the foreign exchange problem and the postponement of some projects in its moulds business.

Nonetheless, Adval Tech was confident about the benefit of having a “lean organisational structure” and said it will focus on growth outside Switzerland.

However, despite its growth push in global markets, the group recorded a 3.1% fall in net sales to CHF 1.45bn in the first three quarters of 2015. EMS said it expected full year net sales to be slightly below 2014 and net operating income to be slightly higher.

A mid-year assessment by Swiss Plastics, the national trade association, showed the Swiss industry in a tense mood as it faced the reality of an adverse exchange rate. In a survey among Swiss Plastics members published in June, those expecting higher turnover dropped from 53% in 2014 to 30% in 2015, those expecting lower turnover increased from 14% to 42%, while those expecting no change fell slightly from 32% to 28%.

Swiss Plastics president Doris Fiala called for alleviation of the situation with policies to prevent tax increases, introduction of a single rate of value added tax and quick reduction of bureaucracy and excessive regulation. “It is only this way that companies producing goods can be kept in our country,” she said.

Swiss manufacturing businesses have taken various measures this year to improve competitiveness, and not just by cutting costs.

In July, Georg Fischer, the Schaffhausen-based group with businesses in injection moulding, pipe extrusion and machining technology, said all employees at GF companies in Switzerland had increased their work time from 40 hours to 44 hours per week, reducing the need for overtime.

On 20 November, GF said the working hours at its Swiss sites would return to 40 hours per week from 1 January 2016. In recognition of their work, all permanent employees in Switzerland will receive a special payment of CHF 1,000 in their December payroll, GF said.

GF group sales were 4% lower in the first half of 2015 at CHF 1.80bn.

Kistler Group, based in Winterthur, said its incoming orders, as at the end of August, stood at CHF 215m, equivalent to year-on-year growth of 3.2%. The group, which makes measurement and sensor technology for the plastics industry and other sectors, said it has taken steps to limit the damage caused by the strong franc.

“These include plans to reduce the quota of suppliers who bill in Swiss francs,” said Kistler. “The relocation of individual operational units or production processes to the Eurozone will also be driven ahead.”

Another company looking to diversify its supplier base is Netstal, the N?fels-based injection moulding machine maker that is part of Germany’s Kraussmaffei Group. Frank Stieler, CEO of Kraussmaffei Group, told Plastics News Europe at the Fakuma show in October that Netstal has also been looking at its working practices in response to the currency situation.

“Programmes are in place to cope with the impact,” he said. “Currency fluctuations are something we know how to deal with.”

Large companies are better equipped to deal with the currency shock, not least because they have operations in other countries which reduces their operational exposure to the Swiss franc. The production facilities at masterbatch and chemicals group Clariant are all outside Switzerland, although the strong franc has still hurt its sales, which were 6% lower at CHF 1.41bn in the third quarter.

But some companies are showing confidence in Switzerland as a manufacturing location. EMS Group started a CHF 35m investment programme at its Domat/Ems site in the first quarter. And in September, GF said its machining business would build a new milling plant in Biel as its current plant in Nidau had reached its capacity limits.