Global Footprint Compensates European Slowdown


During the first half of 2012, Georg Fischer faced uneven economic conditions. Whereas the Corporation increased its sales in Asia and even more in North America, the eurozone woes had a dampening effect on customer demand in that region.

Overall sales reached CHF 1.87 billion, equal to the first half of 2011. Adjusted for currency effects and acquisitions, sales remained at previous year s first-half level.

Despite the tough conditions in the European market, which affected the load of several plants, the operating result reached CHF 113 million, lower than the very strong first half of 2011 (CHF 130 million), but higher than the second six months of 2011 (CHF 105 million).

The return on sales (ROS) reached 6.1 percent and the return on invested capital (ROIC) came to 11.5 percent. All three Corporate Groups reached double-digit ROIC, clearly exceeding their cost of capital. Net profit amounted to CHF 80 million, below the 2011 first-half year figure of CHF 92 million.

Due to seasonal effects as well as the financing of two acquisitions for CHF 77 million, free cash flow for the period was negative at CHF 139 million. In the second half, a substantially positive cash flow is expected. The balance sheet remains very solid with an equity ratio of 41 percent.

Headcount came to 13,839 against 13,600 at year-end 2011, mainly due to the consolidation of two acquisitions in the US and the ramping-up of new plants in Asia.

Thanks to higher purchases in euros and the production increases in Asia and the US, the net foreign currency exposure has been clearly reduced.

Strategy implementation on track

In line with its strategy, Georg Fischer acquired two leading piping systems companies in the US during the first semester. Harvel Plastics, the US leader for industrial pipes, allows GF Piping Systems to offer nationwide the most comprehensive package for water treatment and chemical applications in North America. IPP is a top US manufacturer of large size polyethylene fittings and pipes for the promising water distribution market, a very good fit for GF Piping Systems’ water infrastructure business in the US.

The two acquired companies together add more than USD 130 million of yearly turnover to GF Piping Systems and will contribute significantly to its leadership in the industrial and utility applications worldwide.

Sales at GF Piping Systems went up 6 percent to CHF 645 million compared to the first half year 2011. Organically the top line remained at the same level. Despite double-digit growth in North America, sales were affected by the sluggish demand in Europe and by the very cold winter conditions at the beginning of the year across the continent. Newly developed market segments such as cooling, shipbuilding, and mining showed a promising high growth rate and helped to compensate the downturn in semi-conductors and solar panels production.

The operating result (EBIT) at CHF 65 million remained below the record figure of CHF 80 million achieved during the first half of 2011 due to lower loads at the European plants of GF Piping Systems.

During the first half year of 2012, plants in China and Malaysia were enlarged and the two companies Harvel Plastics and IPP were acquired in the US. They will all add to the top and bottom lines during the second semester.

GF Automotive was affected by the difficult economic conditions in Europe during the first half year. Whereas sales to premium car manufacturers remained at a high level, sales to truck makers and compact car manufacturers slowed down, affecting the load of several plants in Europe. Sales in China increased again but did not compensate the reduction in Europe. As a result, compared to the first half of 2011, the top line went down 1 percent in local currencies and 5 percent in Swiss francs to CHF 824 million.

The operating result decreased to CHF 37 million from CHF 44 million during the first half of 2011. Raw material prices remained overall stable during the period but wages and electricity prices in Germany and Austria increased substantially. The working-time flexibility has been used to adjust actual costs to revenues. This has already resulted in a significant reduction of temporary staff as well as overtime at several plants in Europe.

In order to boost productivity and ensure competitiveness going forward, GF Automotive is investing in a state-of-the-art, fully automated molding line at its iron foundry in Mettmann (Germany). The facility, which will start operations during the fourth quarter of 2012, aims at offering customers the best quality and delivery performance.

GF AgieCharmilles increased its top line to CHF 398 million, up 2 percent compared to the first half of 2011, and 4 percent in local currencies. The adaptation of the product range to the key market segments of electronics, mobile phones, aerospace, and medtech is paying off and led to the increase in sales. As a result, operational profit (EBIT) increased significantly to CHF 17 million from CHF 12 million during the first half of 2011. Thanks to a steady order stream during the period, the backlog at mid-year stands at an even higher level than at the end of December 2011, thus ensuring a good load for the upcoming months.

In order to cope with customer demand, GF AgieCharmilles has increased its production capacity for high-speed milling machines and in parallel opened a new demo center in Nidau (CH) to optimize its consulting and testing services.

Also, thanks to the increase of the purchase volume in euros and the ramping-up of its two Chinese plants, GF AgieCharmilles has further adapted its footprint and increased its competitiveness. Today, a majority of the machines are being produced in China.

Outlook for 2012

Despite difficult economic conditions especially in Europe, the management of Georg Fischer is convinced that a result similar to the first half year can be achieved in the second half. All three Corporate Groups are well positioned to profit from the growth markets of Asia and America. Cost reduction measures were taken during the first half at GF Automotive and GF Piping Systems in Europe which will have their full effect in the second half. In addition, the new acquisitions in the US will bring additional volume and profit and so will the launch of several new products at all three Corporate Groups.

In the coming months and years, Georg Fischer will continue to implement its strategy, which is to foster innovation and productivity at all three groups, increase its overall presence in growth markets and add further acquisitions at GF Piping Systems. The mid-term objectives of 15 percent ROIC and 8 to 9 percent ROS remain valid.

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