A Substantial Rise in Performance

After a weak first quarter, sales recovered especially in the second half year, which showed growth of 4% on the back of better market conditions but also market share gains.

Operating profit (EBIT) rose 13% to CHF 251 million as plants were better loaded in the second half and overhead costs were kept at the previous year s level.

The EBIT margin went up from 6.0% to 6.7%, and the return on invested capital (ROIC) from 15.7% to 16.7%. All three divisions contributed to the profitability increase and generated ROICs well above their cost of capital.

Free cash flow before acquisitions went up 76% to CHF 174 million thanks to the higher profit but also as net working capital was kept at previous year s level and capital expenditures went slightly down.

The number of employees increased by 654 to 14 066 mainly on account of the acquisition of Hakan Plastik (Turkey) in July 2013.

Net profit grew 5%, amounting to CHF 145 million after the deduction of CHF 26 million resulting from the divestment of the gravity die-casting business of GF Automotive.

Earnings per share stood at CHF 34, after the above-mentioned one-off effect. The Board of Directors will propose a dividend of CHF 16 (CHF 15 in 2012) at the Annual Shareholders Meeting.

Significant progress towards strategy implementation

The acquisition in July 2013 of Hakan Plastik, a leading Turkish plastic piping systems manufacturer with annual sales of CHF 100 million, brings GF Piping Systems a strong presence in Turkey, in the Middle East and Eastern Europe as well as a whole array of complementary products, which will be sold by the whole GF Piping Systems sales organization.

The divestment of the aluminum gravity die-casting plant of Herzogenburg (Austria) at the beginning of 2014 allows GF Automotive to focus on its core iron sand casting as well as aluminum and magnesium pressure die-casting activities.

The cost reduction program of CHF 25 million announced at the beginning of the year has been implemented in full and already supported the second-half result. It will be fully effective in 2014.

All three divisions increased their sales and operative profits

GF Piping Systems increased its top line by 8% to CHF 1 402 million, of which acquisitions accounted for 5% and organic growth for 3%. A long and cold winter impacted sales negatively during the first four months in Europe, compensated however by higher revenues as of May, especially in Asia.

Industrial applications recovered in the second half in all regions. Building technology went up significantly thanks to new products in Europe and a larger customer base in China. Utility-related sales remained subdued in Europe but increased significantly in the Americas and in Asia.

Thanks to the acquisition of Hakan Plastik as well as higher growth in Asia and North America, sales outside of Europe accounted for about 60% of the total.

The division increased its operating profit by 4% to CHF 141 million thanks to a better plant load factor and despite negative currency effects in Turkey, India, Japan and Brazil.

GF Automotive saw a nominal 5% decrease in sales to CHF 1 498 million owing to the divestment end of 2012 of its sand casting aluminum plants in Germany. Organic growth stood at 1%.

The Chinese car industry again reported double-digit growth, and the two plants of GF Automotive in that country were fully loaded.

The passenger car industry in Europe however remained on a downwards trend especially during the first half. In the second half, however, the division significantly increased its truck-related sales in Europe as customers increased production in view of the year-end Euro 6 deadline but also thanks to significant market share gains on new generations of commercial vehicles.

The division increased its operative result by 32% to CHF 70 million, thanks to a better plant utilization in the second half and as the cost reductions implemented in the first half-year became effective.

The capacity of the two Chinese plants of GF Automotive is being increased by 50%, effective 2015. In Singen (Germany) the construction of a cutting-edge production line for light-weight components will be started this year for completion end of 2015. It will replace two existing lines, boosting the productivity and competitiveness of this important facility.

GF AgieCharmilles has been renamed GF Machining Solutions to better reflect the diversity of its present offering featuring electro-erosion, milling, laser texturing and automation lines.

The division increased sales by 3% to CHF 867 million in an overall subdued market, thanks to its success in less cyclical market segments like aeronautics, medical devices and smart phones.

Sales in Europe and the US rebounded whilst demand declined in countries affected by currency depreciations such as India or Brazil. In the important China market, the sales development was uneven as tighter financing affected privately owned companies.

The operating profit of the division went up 13% to CHF 51 million thanks to better margins and higher productivity.

At the EMO 2013 in Hanover (Germany), GF Machining Solutions presented products adapted to its key market segments and in particular new solutions to replace broaching with wire-EDM for the production of key aircraft engine components.

Financing secured

GF emitted two bonds of CHF 150 million each in August 2013 with maturities of 5 and 9 years respectively and coupons of 1.5% and 2.5%. The corporation tapped the favourable market conditions in order to secure funds for the redemption of its 4.5% CHF 300 million bond due in September 2014 but also to allow for the financing of further acquisitions. The equity ratio stood at 31% end of 2013.

Accounting and objectives adapted to Swiss GAAP FER

GF has changed its accounting standard from IFRS to Swiss GAAP FER as from fiscal year 2013 on. The 2012 figures have all been adapted as follows in order to ensure a correct comparison with 2013: The change of the accounting standard had no material impact on the 2012 results. It just led to a slight EBIT rise of CHF 1 million, therefore bringing it to CHF 222 million. In the balance sheet, the major change concerns goodwill, which has been offset with equity.

This leads together with other effects to a reduction of equity in the amount of CHF 262 million as per 1 January 2012.

The ROIC objective of 15% at the horizon 2015 has been translated into a 16% to 20% range, reflecting the deduction of goodwill from the invested capital according to Swiss GAAP FER.

Mid-term objectives confirmed

Markets remain volatile but the second half has shown an upwards trend in several markets relevant to our corporation. GF Automotive and GF Machining Solutions built up a strong order book, certainly a good sign for 2014.

Moreover, thanks to the latest transactions, a better portfolio balance will be achieved in 2014 with GF Piping Systems and GF Automotive accounting each for about 40% of total sales. This is a further milestone in the implementation of the 2015 strategy of the corporation.

The management of GF is therefore convinced, that barring unforeseen circumstances, further increases in both top and bottom lines are possible in 2014 and confirms its 2015 profitability objectives of a ROIC in the 16% to 20% range and an EBIT margin above 8%.