Performance Substantially Improved Despite Headwinds


Opportunities seized, challenges mastered, strategy implementation on track: thanks to its global presence and leading market positions, Georg Fischer increased both top and bottom lines considerably.

All three Corporate Groups grew above market average and generated a substantial amount of value in 2011. These results were achieved despite the negative impact of the strong Swiss franc.

Georg Fischer increased its sales by 6 percent to CHF 3.64 billion with solid growth in all regions of the world. Whereas the top line went up 10 percent during the first half year, growth slowed down to 1 percent in the second half. This compares however to a very strong second semester in 2010.

Georg Fischer raised its operational result by 31 percent to CHF 235 million (previous year CHF 180 million). As a result, the EBIT margin (ROS) went up to 6.5 percent (previous year 5.2 %), and the return on invested capital (ROIC) reached 13.3 percent against 9.1 percent in 2010. The net result jumped 56 percent to CHF 168 million, and the profit per share to CHF 39 against CHF 24 in 2010. Free cash flow amounted to CHF 103 million against CHF 150 million in 2010. The overall headcount increased by approx. 700 to 13,606 employees. The bulk of the increase took place in Asia. Personnel costs remained below the 2010 level in Swiss franc terms.

In view of the clearly improved result and in accordance with the dividend policy of the Corporation, the Board of Directors will propose to the Annual General Meeting a dividend payout of CHF 15 per share (previous year CHF 10).

Early measures mitigated the currency impact

The currency effects in 2011 were considerable. At 2010 rates, sales would have reached CHF 4.1 billion for a 18 percent increase and operating profit CHF 312 million (+73 % versus the previous year) for a 7.7 percent ROS.

The currency impact affected GF Piping Systems and especially GF AgieCharmilles, as an important part of their production takes place in Switzerland. However, thanks to the measures taken early in the year such as price adjustments and increased procurement in euros, both Corporate Groups limited the impact.

Georg Fischer will continue to implement these measures in 2012 in order to reduce its overall net currency exposure.

All three Corporate Groups clearly generate value

GF Piping Systems reported sales of CHF 1.17 billion, unchanged from 2010. In local currencies, sales increased by 11 percent.

After a strong first half, demand growth slowed down in the second half, especially in Europe, whereas growth in the US and in Asia remained stable at a high level. Utilities, water treatment, mining but also the building technology applications of GF Piping Systems enjoyed robust growth but more cyclical business areas such as semi-conductors and photovoltaics went into a clear downturn.

Countermeasures were taken early in the year, which allowed GF Piping Systems to reduce the impact of the Swiss franc appreciation and book operating profit of CHF 137 million, equal to the previous year record, for a strong ROIC of 16.6 percent (previous year 17.7 %).

In October, GF Piping Systems opened its eleventh and largest plant in China, allowing the Corporate Group to better cover the Chinese territory. New logistics centers have been opened in Atlanta, USA, for North America and in Singapore for Southeast Asia, while the main hub in Schaffhausen has been enlarged. In December, Georg Fischer acquired Harvel Plastics (which will be consolidated as of 2012), the leading industrial pipe manufacturer in the US, thus significantly strengthening the position in that country.

GF Automotive increased its sales 7 percent to CHF 1.66 billion. In local currencies, the growth amounts to 20 percent. Truck-related demand remained buoyant and passenger-car-related sales were stable at a high level all through the year, thanks to sustained demand from premium manufacturers for mid- and high-end vehicles. Sales in the second half were slightly below the first half owing to seasonal effects, especially the customer holidays in August and December.

Whereas primary raw material prices for aluminium or scrap iron were stable on the whole throughout the year, secondary raw material prices went up significantly from the outset, especially rare earths, but also coke, manganese, and copper. This led to a significant increase of about CHF 25 million in input costs, thus eroding margins.

Nevertheless, GF Automotive significantly increased its operating profit from CHF 37 million in 2010 to CHF 71 million in 2011 for a much improved ROIC of 11.9 percent (5.9 % in 2010).

GF Automotive is investing in a state-of-the-art moulding line in its iron foundry in Mettmann, Germany. The facility, which will be commissioned in the second half of 2012, aims at maintaining and enhancing productivity and competitiveness in its core market, Germany. In China, the capacity of the two GF Automotive plants is being steadily enhanced to cope with demand. In the US, a license and partnership agreement has been signed with Grede, spreading the use of the successful SiboDur iron alloy but also allowing GF Automotive to cover its customer needs in the US.

GF AgieCharmilles enjoyed healthy sales growth of 11 percent in Swiss francs in 2011, as much as 25 percent in local currencies. Sales grew to CHF 800 million. The order intake also jumped 26 percent in local currencies and the backlog at year-end was 49 percent higher than previous year. New products generated significant revenues especially on the milling side. Markets also developed positively in 2011, in Europe generally and particularly in Germany. In China, inflationfighting measures and credit restrictions significantly affected small and medium sized customers but major orders were booked with major customers. The culmination came at yearend with the largest single order ever for almost 100 machines placed by a well-known manufacturer of components for electronic devices.

The supply of some critical parts, which had been affected as of March by the earthquake in Japan, returned to normal as of the fourth quarter. A major topic for GF AgieCharmilles in 2011 was the appreciation of the Swiss currency. The Corporate Group limited its impact by adjusting prices, increasing eurobased procurement but also thanks to an agreement reached to increase working hours in Switzerland to 43 hours per week.

Overall, GF AgieCharmilles increased its profitability substantially, reaching EBIT of CHF 37 million (previous year CHF 22 million) and ROIC of 13.0 percent against 7.2 percent in 2010.

In February GF AgieCharmilles opened its second plant in China, located in Changzhou, near Shanghai, and dedicated to the manufacture of milling machines. In addition, the existing Beijing plant has been enlarged and modernized to allow for the production of EDM models previously made in Switzerland. Both measures will allow for a more favorable currency exposure.

Solid balance sheet allows for proactive moves

The equity ratio stood at 42 percent at year-end, slightly higher than the 40 percent achieved in 2010. Net debt in 2011 decreased again to below CHF 300 million.

The Corporation also negotiated a new syndicated loan facility of CHF 250 million in 2011, replacing the previous one at considerably better terms. The new facility, so far untouched, also increases the capacity of Georg Fischer to proceed with acquisitions at GF Piping Systems in line with its strategy.

Strategy implementation on track

The 2015 strategy of Georg Fischer aims at steadily enhancing the overall performance of the corporation as well as the stability of its earnings. Its implementation is in full swing. In 2011, the presence in Asia and in the Americas was further developed with the addition of two manufacturing plants in China and the acquisition of Harvel Plastics in the US.

Innovation was boosted as evidenced by the launch at the September EMO exhibition of six new products at GF AgieCharmilles. GF Piping Systems likewise launched a new and promising instrumentation line at year-end for its industrial and municipal water treatment customers.

GF Automotive strengthend its position as vehicle weight reduction specialist with several projects with different customers.

In Europe, the focus at all Corporate Groups is on efficiency and productivity gains. This resulted in 2011 in an output growth of 20 percent without substantial cost increase.

In 2012, we will stay on our implementation track with additional plants and sales offices in growth markets as well as acquisitions to reinforce our market positions.

Stability and continuity promote customer trust

The continuity in its management, the added stability stemming from its international reach and the presence of the Corporation in several industrial sectors is appreciated by its customers. It is often a key factor in the award of important contracts. Proximity as well as continuity are important in gaining the trust of customers in industrial sectors with long term investment cycles such as those of Georg Fischer.

The Board of Directors will therefore continue to foster and promote the independence of the Corporation as the best guarantee of continuity and predictability for its customers and sustainable value generation on behalf of all its shareholders.

A cautiously optimistic outlook for 2012

We begin the year with a high backlog and expect additional volume and earnings from our 2011 investments in Asia as well as the newly acquired Harvel Plastics in the US.

However, the year 2012 starts amid economic and financial uncertainties, especially in Europe, and we will remain prudent regarding costs and cash outlays. Whereas short term forecasts are difficult to make as visibility remains poor, we confirm our objective for 2015 of ROIC exceeding 15 percent as well as ROS in the 8 to 9 percent range.

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