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Bobst: mission accomplished

Weighed down by the strong Swiss franc, the Vaud-based company has modernized beyond all expectations. Bobst is reaping the fruits of its labour and the packaging-machine manufacturer has become a leading force in the market.

© BOBST

It’s barely daybreak in Mex. In this small town in the Vaud countryside, the Bobst factory is a hum of activity in the middle of fields.

The clock reads 6.30 am, but employees are already working hard. It’s Thursday 2 March 2017, and the world leader in packaging and labelling machine manufacturing must publish its annual report for 2016. In treasurer Guiseppe Santoro’s office, the stress level is palpable but no one is worried. The company’s performance is once again miraculously good this year, despite the economic conditions. Revenue was up 8.7% versus 2015, and net profits rose 25.6% to 84.3 million Swiss francs.

There are more than 20,000 Bobst machines in use on the market, and their owners can pay for new services

But don’t let the numbers fool you; the group has made a huge comeback. Founded in 1890 in Lausanne by Joseph Bobst, the family company grew at a healthy rate and slowly gained an excellent reputation for quality machinery and reliability. From the outset, the Swiss manufacturer always wanted to expand operations around the world and regularly opened subsidiaries across the globe, beginning in France. In 1978, Bobst - BOBNN - went public. Its future followed the path of globalisation, and business was booming. The company always sold more machines that produce cardboard boxes, glass bottles, wood crates and plastic bags, particularly for the agri-food and textile sectors.

By the numbers

53%

The percentage of packaging (cardboard, plastic containers, etc.) in the world manufactured by Bobst machines.

1.447

2016 revenue in Swiss francs, up 8.7% versus 2015.

5,055

The number of Bobst employees, 1,800 of whom are in Switzerland.

1.7

Swiss franc. The dividend paid out to Bobst shareholders.

19.9%

The return on capital employed (ROCE), nearly 4 points higher than in 2015.

Difficulties arose as a result of the 2008 economic crisis and the sudden rise in the Swiss franc, which weighed on the company’s competitive position. In 2009, Bobst lost 161 million Swiss francs for the first time in its history. It was time for a transformation.

Paradoxically, that was also the moment shareholders decided to bring the family heir into the business. Jean-Pascal Bobst was named CEO in May 2009 and decided to roll up his sleeves and get to work, as the outlook was rather alarming. The first order of business was to reduce costs to free up cash and reduce debt. Bobst sold the Prilly location and all activity was moved to the new factory in Mex, inaugurated in 2013. Then, the number of stocks was reduced by half, which freed up 250 million in cash. Since then, no packaging or labelling machine is manufactured in advance: production begins only once the client has signed off on the purchase.

No packaging or labelling machine is manufactured in advance: production begins only once the purchase has been signed off

This flexibility allows the company to save money, while also remaining extremely close to demand. Robin Seydoux, analyst at Research Partners in Zurich, is quite interested in Bobst. He recently visited the company’s headquarters. “Business is less vertical than before. Only a small amount of production is done in Mex,” he says. “The production chain is composed of three modules. Each part of the machine is made independently and then assembled at the end. That means various parts for different machines can be manufactured at the same time, reducing the number of employees needed for this process.”

In total, 50 million was spent on modernising equipment at the Mex facility. The new production chain will also be implemented at the company’s German and French factories this year.

To increase interest on the global market, Bobst also decided to delocalise most of its production.

“Before, 70% of production took place in Switzerland. Now it’s barely 30%,” says Seydoux. The group has factories in Europe, China, Brazil and India. Last year, approximately half (45.7%) of sales were in Europe, and close to a third were on the American continent (29.5%). Sales increased in Asia (21.3%) and Africa (3.5%), two markets that are avenues for growth for the company.

The end of the family dynamic?

Cutting costs, however, meant that the company had to significantly reduce its workforce. More than 400 positions were cut since 2009, which was a huge shock in the canton of Vaud, where Bobst is an institution. Employees went on strike for the first time in April 2015, protesting against declining working conditions, particularly the decrease in certain bonuses. Protesters missed the “family dynamic” that used to be so present at Bobst. It disappeared in favour of dividends for shareholders, as reported by the Vaud daily 24 heures.

It was a valid claim: from the very beginning, the Bobst “culture” was one in which the company paid particularly close attention to the well-being of its employees. Its code of conduct touts the importance of “moral values”. A passage reads: “Today’s society tends to forget that moral values exist and that they are universal. Our professional behaviour must reflect those moral values and display our commitment to them, in order to show that they are alive and well and that they are vital to our company.”

These moral values are particularly important to Jean-Pascal Bobst, who is known for his religious faith. Several layoffs were avoided. At the Mex location, there are close to 200 apprentices in training, and children of employees spend the day in the company nursery. But is the massive offshoring at odds with promoting Swiss expertise? The CEO, who cultivates discretion, declined an interview request from Swissquote Magazine.

Bobst machinery used to manufacture packaging in Coburg, Germany. © Bobst

Even though the financial results are in, Bobst hasn’t yet completed its transformation. To generate profits, the company now offers clients digital services via the platform mybobst.com. Clients can log on to order spare parts and receive technical expertise. The digital services are already available in Switzerland and will be expanded to the international market in 2017, according to Seydoux. “Each year, Bobst manufactures 1,300 new machines, but that’s not enough to generate large profits. However, there are more than 20,000 Bobst machines in use on the market, and their owners can pay for new services.

For Bobst, the digital after-sale service is the only way to stand out from its competition.” Even though Bobst is the only company on the global market, it faces increased competition in certain key sectors. The German company KBA is neck-and-neck with Bobst in the cardboard-packaging market, while another German company, Windmöller & Hölscher, is right on Bobst’s heels in the flexible-packaging market.

With figures in the black and an excellent outlook, Bobst has every reason to imagine a rosy future, even if 2017 will be “unpredictable”, according to a cautious statement from the company. And more good news: Bobst will open its third factory in China in early 2018. So it makes sense that Alain Guttmann is expected to be re-elected as Chairman of the Board. Why change a winning team?

Analyst's opinion

With a reasonable share price and excellent results, Bobst is a safe investment

While Bobst is a legend in French-speaking Switzerland, it remains relatively unknown in German-speaking Switzerland. Remo Rosenau of Neue Helvetische Bank is one of the few analysts from the region who follows Bobst closely. “We’ve held Bobst shares in our portfolio for three years and have never removed them,” says Rosenau.

“The management has really done a great job and improved the company’s profitability, despite the crisis. Their progress is also a result of the new production chain at the Mex location, which is a modular system similar to what’s used in the automotive industry.

If the pattern continues, EBIT could exceed 8%. And the share price isn’t too high, since Bobst has long been ignored by analysts and investors. The price is around 90 Swiss francs and rising, as interest is clearly increasing. The good financial results haven’t kept Bobst from investing. The company has launched no fewer than 16 new models over the past two years.

It’s also working on manufacturing machines that are completely digital. “They’re in the beta stage,” says Rosenau, “but if Bobst manages to sell them, they will be the first company on the market to do so. It would be a revolution!”

 
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