Georg Fischer affected by weak global demand for capital goods
The poor health of the capital goods and semiconductor industries worsened further during the first half of the year. As a result, sales at the Georg Fischer Corporation were 15 % lower (11 % when adjusted for exchange rates) than the year-back period, at CHF 1 732 million.
Despite tough cost-cutting, the first-half operating result dropped to a third of the previous year’s figure. The weak economy has affected Georg Fischer in the midst of integrating new activities and is thus delaying the financial benefits of strategic action programmes. Although at CHF 5 million first-half profits for 2002 were well below those of the previous year, they were still higher than the result for the second half of 2001. Should economic activity pick up, earnings will rise significantly thanks to the low cost base that has been achieved. Georg Fischer’s medium and long-term prospects remain bright.
Georg Fischer is very well positioned in all four of its Corporate Groups and made further progress on strategy implementation in the first half of the year. Automotive Products received a large number of attractive new long-term orders, thanks mainly to the expansion of light alloy casting. However, results are being held back by the state of the market for commercial vehicles and the delay in bringing new products and plants on stream. In its alliance with SIMONA, Piping Systems achieved a key strategic goal. Good results in the utilities segment were offset by poor sales in the semiconductor and project businesses. Manufacturing Technology (Agie Charmilles) was hit particularly hard by the market collapse. Although the Group maintained its market share, sales were down by a quarter. The acquisition of Step Tec enhanced the Group’s technological expertise in high-speed milling machines. Plant Engineering (Coperion) acquired its largest-ever order but is still facing the market’s reticence about placing projects. Order intake is falling as a result.
Results as at June 30, 2002
At CHF 139 million, the operating result before interest, taxes, depreciation and amortisation (EBITDA) was 40 % lower, year-on-year. The operating result (EBIT) was just a third of the previous year’s level, at CHF 42 million. Thanks to the cost-cutting programme, Georg Fischer was able to save around CHF 120 million compared to the first half of 2001. At CHF –31 million, free cash flow was negative compared to the end of 2001, owing to lower income and to the increase in current assets as a result of higher invoiced sales and ongoing capital investment. Exchange rate fluctuations reduced earnings by CHF 5 million. Net debt rose by CHF 53 million in the six months to 30 June 2002. The CHF 100 million debenture loan, due on July 3, 2002, was repaid.
The concern is still waiting for a recovery in the capital goods sector. Any revival in the second half would quickly boost Georg Fischer’s results. However, despite additional cost-cutting, it will not be possible to match last year’s results.
Georg Fischer Piping Systems improved its position in several areas amidst tough market conditions. With its planned production joint venture with the German company SIMONA, the Group expands its industrial systems business with fluorpolymers. Distribution Systems won market share in Europe and the Middle East. The joint venture with Fränkische Rohrwerke made a good start in the highly competitive German market. In China, the Group once again posted above-average growth.
Results as at June 30, 2002
The persistent economic crisis in the market for industrial systems, and semiconductors in particular, had a negative impact on the Corporate Group. In the first half of 2002, Piping Systems posted EBIT of CHF 15 million (–63 %). The gas and water distribution division improved its result on the back of impressive volume growth.
The concern expects the market for Industrial Systems to improve slightly, especially in Europe and Asia. No significant upswing in business with the semiconductor industry is expected until 2003. This is particularly true of the US market. Where the Distribution Systems division is concerned, business in Europe and China should remain robust. Major efforts to promote Domestic Installations in these regions should also produce further sales advances. Profit growth in the second half of the year depends on how economic activity develops in Germany and the US, although even a tentative revival would have a marked effect on results.
Source: Georg Fischer AG