Productivity Increases Foster Profitable Growth
Georg Fischer increased sales during the first half-year by 2% in CHF. Adjusted for currency effects, acquisitions and divestments, growth amounts to 4%. Most of the increase has been generated in Europe and in China. All three divisions increased their top line in local currencies.
The operating result (EBIT) grew 12% to CHF 132 million as plants were overall better loaded than previous year and the cost reductions of 2013 became fully effective. Excluding the negative impact of several currencies, such as the USD and the Turkish Lira, the increase in EBIT would have exceeded 20%. The return on sales (ROS) was lifted up to 7.0% and the return on invested capital (ROIC) to 17.2% compared to respectively 6.4% and 14.5% during the first semester of 2013. All three divisions reached a double-digit ROIC, well above their cost of capital.
Net profit increased 11% to CHF 92 million against CHF 83 million, the sale of a land parcel in Schaffhausen adding CHF 6 million. Free cash flow before acquisitions stood at a seasonally low –CHF 64 million. For the second half-year, a substantially positive cash flow is expected.
Headcount went up to 13 800 from 13 400. The headcount increase of 630 generated in Turkey by the acquisition of Hakan Plastik in July 2013 was partly offset by the decrease of 340 employees resulting from the divestment in January 2014 of the gravity die-casting plant of Herzogenburg (Austria).
Despite a harsh winter in the US and the ongoing investment slump in the semiconductor sector, GF Piping Systems increased sales by 12% to CHF 742 million. Free of acquisitions and currency effects, organic growth stood at 7%, coming mainly from Europe and China as well as from a good success in building technology, shipbuilding and cooling applications.
The operating result went up 4% to CHF 70 million from CHF 67 million in 2013, the increase in turnover compensating negative currency effects in Turkish Lira but also in US Dollar-denominated sales.
Sales growth at GF Hakan Plastik has been strong, especially in export markets. Measures have also been taken to significantly reduce foreign currency exposure and increase prices in Turkish Lira in view of bringing profitability levels up in the second half-year.
The reported sales of GF Automotive went down during the first half-year to CHF 718 million. Adjusted for currency effects and divestments, organic growth stood at 1%. In fact, the production volume went up 4% but only generated a 1% sales growth as the price decline of basic metals is passed on to the customers of GF Automotive. The division benefited from the slight upswing of the European car industry and from strong market conditions in China.
GF Automotive increased its operating result to CHF 49 million against CHF 35 million in 2013. The increase of 40% resulted from a better plant load in Europe as well as from the portfolio streamlining and the cost reductions implemented in 2013.
GF Machining Solutions increased its bookings by 2%, 5% in local currencies, mainly on account of a rebound in Europe and a steady order intake in China. First half-year sales lagged somewhat behind orders as large contracts will be delivered in the second semester. In CHF they amount to CHF 420 million, at previous year’s level. In local currencies, they were up 3%.
The operational profit was somewhat lower than previous year at CHF 20 million against CHF 22 million mainly on account of currency effects.
Strategic moves to enhance value generation and reduce cyclicity
GF Piping Systems became for the first time the largest division of GF. This represents an important change in portfolio in view of reducing the overall cyclicity of the corporation and increase its profitability.
GF Automotive signed early July a strategic and financial partnership with Meco Eckel, the leading German manufacturer of pressure die-casting molds. This partnership brings a unique combination of mould and component production know-how at the service of our customers. Closing is expected in the next few weeks.
In addition, GF Machining Solutions acquired early July Liechti Engineering AG, the leading specialist of 5-axis milling machines used to produce key components of aircraft engines and power generating turbines. GF Machining Solutions will thus significantly strengthen its presence and product portfolio in the promising and less cyclical aerospace sector.
Outlook
GF expects market demand to remain uneven with a slight recovery in Europe and rather low growth levels in several Asian and South American countries. Nevertheless, despite a traditionally weaker second half-year, GF expects to generate during that period figures similar to the first semester.
The US market for GF Piping Systems is recovering after the dismal weather conditions of the first quarter, the backlog of GF Machining Solutions is high and the car markets, including trucks, should be supportive of further growth at GF Automotive. In addition, the two acquisitions of GF Automotive and GF Machining Solutions strengthen their competitiveness and will add both volume and profit during the second half-year.
GF will keep course regarding the implementation of its strategy, steadily increasing its productivity in Europe and expanding in growth markets. The 2015 objectives remain unchanged with a ROIC between 16% to 20% and a ROS in the 8% range.
Source: Georg Fischer AG
