Georg Fischer To Strengthen its Performance
Georg Fischer streamlines its three core businesses and launches a comprehensive structural programme to improve operational performance in all three corporate groups. These measures will result in a lasting increase of the Company's profitability and reduce its net financial debt, even in a continuously difficult economic environment.
The entire programme will be implemented by the end of 2004 and will improve the operating result (EBIT) by CHF 100 million in the financial year 2005 compared to 2002. Georg Fischer will further strengthen its capital base by divestments and the issuance of a subordinated convertible bond.
Georg Fischer deems its current level of profitability to be unsatisfactory in the prevailing economic envi-ronment. In the past months, the Company has prepared a comprehensive structural programme. As al-ready announced in the semi-annual report 2003, important steps have been taken to improve profitability and reduce net financial debt. This programme has been designed to improve the operating result (EBIT) by CHF 100 million by the end of 2005 compared with the financial year 2002.
This corresponds to an EBIT level which will have doubled by 2005. The improvement will be sustainable, even if there is no change to the currently challenging economic environment. A number of positive effects will already impact the bottom line in 2004. Specific measures include a reduction of the number of manu-facturing sites in Europe and the USA, streamlining the individual corporate groups, and the divestment of activities, participations and real estate that are no longer part of the core businesses. Cost reductions in purchasing will lead to a further improvement of the operating efficiency of each corporate group. Furthermore, targeted adjustments to the sales and administration network will markedly enhance the competitiveness of the core businesses.
Structural programme already being implemented
Georg Fischer has already implemented important specific measures which are part of the structural pro-gramme. In the past few weeks, four structure projects have been announced and initiated. The sales cooperation with Fränkische Rohrwerke Gebr. Kirchner GmbH was terminated on 1st October 2003. In addition, the Company's foundry in Bitterfeld (Germany) will be closed in 2004, and production will be part-ly transferred to Herzogenburg (Austria).
The plastic products plant in Genoa (Italy) will also be closed down at the end of this year, with production being transferred to Schaffhausen. The pipe-jointing business in Singen is to be restructured. In addition, it has been announced today that the Manufacturing Technology group (Agie Charmilles) will close its two plants in Owosso and Davidson (USA) and concentrate production, thereby reducing overcapacity in this sector. All other measures envisaged under the structural programme are currently being implemented and will be completed by 2004.
The targeted improvement in operating profit of CHF 100 million requires a one-off charge of CHF 130 million, of which about CHF 80 million will be cash relevant. On the other hand, Georg Fischer expects cash proceeds from its divestments of approximately CHF 150 million. Cash costs associated with the structural programme will therefore be more than compensated by divestment proceeds.
The financial result 2003 will be affected by non-recurring charges, including provisions, of approximately CHF 110 million (out of the total of CHF 130 million). In addition, a goodwill impairment of CHF 60 million on the Mössner acquisition (Automotive Products) will apply. Earnings will show a sustainable improve-ment from 2004 onwards, when the effects of the structural programme start to filter through to the bottom line.
Current business in the second half of 2003 is likely to develop in line with the outlook published in the semi-annual report. Based on the assumption of an unchanged economic environment, the second half of 2003 should show a slight improvement in the operating result (EBIT) over the first half year (CHF 42 mil-lion).
Implications for the workforce
The measures will lead to a reduction in staff of about 1,000 people worldwide, i.e. slightly below 8% of the Corporation's entire workforce. Staff reduction cannot be fully achieved in the course of natural attrition. Georg Fischer will ensure that the planned staff measures are discussed in detail with the employee re-presentatives and carried out under socially acceptable conditions. Each separate measure will be an-nounced as soon as the employees concerned have been informed.
Reduction of net financial debt
It is one of Georg Fischer's primary objectives to reduce its net financial debt through the planned di-vestments and increased free cash flow generation by some CHF 300 million by the end of 2005.
Strengthening the capital base
Furthermore, Georg Fischer plans to issue a subordinated convertible bond in the amount of approximate-ly CHF 120 to 150 million. The bond will be issued with tradable subscription rights for existing sharehol-ders and is targeted at strengthening the Company's capital base. The associated conditional share capi-tal requires approval from Georg Fischer's shareholders at an Extraordinary General Meeting, which will convene in November 2003. The shareholders of Georg Fischer Ltd will receive an invitation to the Extra-ordinary General Meeting in due course. The terms of the convertible bond will be fixed and announced at a later date.
CEO Kurt Stirnemann summarizes: "We do not want to simply wait for an improvement in the economy. We have therefore decided to carry out a number of measures, which will sustainably strengthen our profi-tability. We're convinced that we can increase our operating profit by CHF 100 million by 2005. The value of each of the three corporate groups will increase significantly. An improvement in the overall economy will result in an additional improvement of our earnings. All these measures, together with the reduction of our net financial debt, will strengthen Georg Fischer for the future. However, certain measures - some of them with farreaching implications - have not been easily decided on. I refer in particular to those relating to job losses. Nevertheless, we have to do everything possible to substantially increase the value of the Company."
Source: Georg Fischer AG