Annual Report 2014

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Key Figures

Key Figures
Key Figures
Million CHF 
2014 2013
2012

 

Sales

 

3 795

 

3 766

 

3 720

EBIT 274 251 222
Return on sales (EBIT margin) % 7.2 6.7 6.0
Return on invested capital (ROIC) % 17.9 16.7 15.7
Free cash flow before acquisitions/divestitures 110 174
99
Dividend (proposed) per registered share in CHF 17 16 15
Employees at year-end 14 140 14 066 13 412

Service at GF

For more than two centuries, customers trust the high quality and reliability of GF’s products and services. With worldwide production locations, customer proximity and performance are ensured around the globe. The decentralized research and development centers in the major markets allow GF to better understand customer needs and quickly act upon them.

Service
  

All about GF

Our Profile //

GF comprises three divisions: GF Piping Systems, GF Automotive, and GF Machining Solutions. Founded in 1802, the Corporation is headquartered in Switzerland and is present in 31 countries with 126 companies, 47 of them production facilities. Its approximately 14 100 employees generated sales of CHF 3.80 billion in 2014. GF is the preferred partner of its customers for the safe transport of liquids and gases, lightweight casting components in vehicles, and high-precision manufacturing technologies.

GF Piping Systems

Sales

GF Piping Systems is a leading supplier of piping systems made of plastics and metal. The division focuses on system solutions and high-quality components for the safe transport of water and gas in industry, utilities, and building technology. Its product line includes fittings, valves, pipes, automation and jointing technology and covers all water cycle applications.

GF Piping Systems supports its customers in over 100 countries through its own sales companies and representatives. The division is  present in Europe, Asia and the Americas with more than 30 manufacturing sites and research and development centers, which also support
energy-saving use of raw materials and resources.

Key figures GF Piping Systems
million CHF 2014 2013

 

Sales

 

1 476

 

1 402

EBIT  142 141
Return on sales (EBIT margin) % 9.6 10.1
Invested capital (IC) 685 621
Return on invested capital (ROIC) % 17.1 18.7
Employees at year-end 6 086 6 095

GF Automotive

Sales

GF Automotive is a technologically pioneering development partner and manufacturer of lightweight cast components and systems made of ductile iron, aluminum and magnesium for the global automotive industry as well as a variety of industrial applications. The highly complex lightweight components contribute to making modern vehicles lighter and reducing the CO2 emissions.

GF Automotive manufactures at 9 production plants in Germany, Austria, and China. In those countries as well as in Switzerland, Korea and Japan it operates sales offices. The lightweight research and development competency is in Schaffhausen (Switzerland) and Suzhou (China).

Key figures GF Automotive
million CHF 2014 213

 

Sales

 

1 415

 

1 1498

EBIT 93
70
Return on sales (EBIT margin) % 6.6
4.7
Invested capital (IC) 393
384
Return on invested capital (ROIC) % 21.8 16.1
Employees at year-end 4 898 4 947

GF Machining Solutions

Sales

GF Machining Solutions’ electrical discharge, high-speed milling and laser texturing machines, along with automation solutions, make it the world’s leading provider to the tool and mold making industry and to manufacturers of precision components. Most important customer segments are information and communication technology, aerospace, and the automotive industry.

The division has its own sales companies in more than 50 countries and production plants in Switzerland, Sweden, and China. GF Machining Solutions operates research and development centers in Meyrin, Losone, and Nidau (Switzer-
land), Vällingby (Sweden), Beijing, and Changzhou (China).

Key figures GF Machining Solutions
million CHF 2014 2013

 

Sales

905
867
EBIT   53 51
Return on sales (EBIT margin) % 5.9 5.9
Invested capital (IC) 302 274
Return on invested capital (ROIC) % 16.9 15.2
Employees at year-end 3 008 2 873
  
Worldwide for you

Review

Market proximity


Being close to the market is crucial to develop the best solutions for customers. GF has 38 Centers of Competence (CoCs) around the globe. Extensive training centers and large product demonstration areas provide customers with tailor-made services and personal support worldwide.

Centers of Competence

Network of competence //

GF Piping Systems operates eight CoCs in Europe, three in the Americas and six in Asia. Eleven CoCs of GF Machining Solutions are located in Europe, three in the Americas and seven in Asia. Five of them were newly opened in 2014:

Asia //

ReviewExhibition area at GF Machining Solutions’ new CoC in Shanghai.

GF Machining Solutions opened a new CoC in Shanghai (China). It focuses on customers in the automotive and electronic component industries and offers comprehensive support in reaching efficiency and sustainability targets.

Europe //

ReviewPascal Boillat (l), Head of GF Machining Solutions, and Antonio Faccio, Managing Director of GF Machining Solutions Italy, at the opening ceremony in Milan.

The new CoCs near Milan (Italy), Paris (France) and Brno (Czech Republic) allow GF Machining Solutions to be closer to the local markets. Customers benefit from extensive technological expertise and on-the-spot support.

USA //

ReviewGuests at the opening of the new CoC in Irvine admire the saltwater aquarium with GF pipes.

GF Piping Systems and GF Machining Solutions opened a joint CoC in Irvine (California), to further strengthen customer services at the West Coast. Both divisions provide their customers with individual support in maximizing the profitability of operations.

All Centers of Competence collaborate and exchange their expertise to expand the knowledge base across international borders. In future, GF will further extend its global network of competence to be represented wherever its customers are. This allows the Corporation to respond quickly to local market needs and to develop the very best solutions for its customers.

Highlights GF Piping Systems
ReviewInternational experts at the Water Technology Summit.

Successful premiere // At the GF Water Technology Summit in Schlatt (Switzerland) in September, 50 international experts addressed key water challenges with regard to desalination and mobile water treatment. In future, GF Piping Systems will hold the summit annually.


Best supply chain // GF Piping Systems won the Supply Chain Management Award at the international Supply Chain Convention in Frankfurt (Germany) in June. The division’s integrated end-to-end supply chain solution was singled out as the best which enables the development of innovative services.

Highlights GF Automotive
ReviewThe Helios Award 2014 for energy efficiency went to GF Automotive.

Sustainable production // In July, GF Automotive won the Helios Award given by the Economic Chamber of Lower Austria for performance in terms of energy efficiency. The modernization of the division’s production sites in Herzogenburg (Austria) saves 2.5 million kWh of energy and 650 tons of CO2 per year.


New partnership // GF Automotive announced the financial participation in the German Meco Eckel GmbH in July. The strategic and financial partnership with the leading specialist in mold-making enables not only faster design-to-production processes but also enhanced offerings and seamless supply and service.

Highlights GF Machining Solutions
ReviewMachine of Liechti Engineering AG producing blisks.

Promising aerospace // Since July, Liechti Engineering AG, Langnau (Switzerland), is part of GF Machining Solutions. The acquisition allows GF to expand its presence in the aerospace sector. Liechti is the worldwide market leader for 5-axis milling machines for aircraft engines and power generating turbines.


Golden Micron // GF Machining Solutions’ Integrated Vision Unit (IVU Advance) won the Micron d’Or Award last September at the Micronora in Besançon (France). The IVU Advance provides precision up to the micron.

Letter to the Shareholders

GF keeps its earnings growth path

Dear shareholders

GF generated sales of CHF 3 795 million in 2014 for an increase of 1%. The operating profit (EBIT) rose 9% to CHF 274 million mainly thanks to significant productivity gains.

The EBIT margin went up from 6.7% to 7.2% and the return on invested capital (ROIC) from 16.7% to 17.9%. All three divisions generated ROICs well above their cost of capital.

Free cash flow before acquisitions and divestments stood at CHF 110 million compared to CHF 174 million in 2013 mainly on account of higher investments in fixed assets, especially at GF Automotive. Furthermore, the high turnover in December led to a clear increase of the net working capital at year-end compared to 2013.

The number of employees rose slightly from 14 066 to 14 140. The increase due the acquisition of Meco Eckel (Germany) and Liechti Engineering (Switzerland) has been nearly offset by the divestment of the gravity-die-casting operations in Herzogenburg (Austria).

Net profit grew 34% to CHF 195 million and earnings per share 32% to CHF 45 also supported by the disposal of non-operative real estate. The Board of Directors will propose a dividend of CHF 17 (CHF 16 for 2013) at the Annual Shareholders’ Meeting.

Strategy implementation well under way //

For the first time ever, GF Piping Systems became the largest division of GF, a change which continues to reduce the corporation’s overall exposure to economic cycles and increases its overall profitability.

GF Automotive has divested its non-core activities and significantly improved its position in the pressure die-casting sector by entering in July into a strategic partnership, including a majority stake, with Meco Eckel, a leading German manufacturer of pressure die-casting molds.

GF Machining Solutions is now well focused on less cyclical, more profitable market segments such as the promising electronics and aerospace sectors. In the latter, it became a leading actor in 2014 by acquiring Liechti Engineering AG, the specialist of 5-axis milling machines for the production of the key rotating components of aircraft engines and power generating turbines.

Yves Serra, President and CEO and Andreas Koopmann, Chairman of the Board of Directors.Yves Serra, President and CEO, and Andreas Koopmann, Chairman of the Board of Directors, standing in front of the new production machine for large fittings in Schaffhausen.

All three divisions increased their operating results, GF Automotive the most

GF Piping Systems

GF Piping Systems grew its top line by 5% to CHF 1 476 million. Organic growth reached 3% mainly on account of strong sales in the US gas sector as well as in Building Technology in Europe and shipbuilding worldwide. The general demand in Europe but also in sectors like semi- conductor plants remained however subdued.

The operating result went up to CHF 142 million (from CHF 141 million in 2013). Profitability in the core business remained at a high level but the new acquisition in Turkey was affected by the strong depreciation of the Turkish Lira, at least during the first half-year.

Measures have been taken at GF Hakan Plastik which led to a 35% increase in sales and in the fourth quarter to a much higher profitability.

GF Automotive

GF Automotive saw its turnover decrease by 6% to CHF 1 415 million in January on account of the divestment of its gravity die-casting operations in Herzogenburg (Austria) but also because the basic metal price decreases were passed on to customers. The truck-related demand became rather slack during the second half-year. On the other hand, the demand related to passenger cars remained at a good level in 2014, and attractive orders have been obtained, especially at premium manufacturers.

The operating result jumped 33% from CHF 70 million to CHF 93 million as non-core, low performing businesses have been divested and the average contract margins improved. In addition, its new acquisition Meco Eckel contributed very positively to the overall result.

The ROS went significantly up from 4.7% to 6.6% and the ROIC from 16.1% to 21.8%. The extension of the iron casting plant of Kunshan (China) has been completed on time in October 2014 for a capacity increase of 50%.

GF Machining Solutions

GF Machining Solutions increased its turnover by 4% to CHF 905 million. The Liechti acquisition added CHF 32 million. The organic growth stood at 2%. After a rather slow start, orders picked up in the second half- year, especially in the electronics and aerospace sectors, for an increase of 9% compared to 2013 out of which 3% attributed to Liechti who obtained a major order in the amount of CHF 28 million at a well-known aircraft engine manufacturer. The backlog of the division went up 45%, certainly a good sign for 2015.

The operating result reached CHF 53 million against CHF 51 million in 2013, the Liechti contribution being compensated by margin reductions in countries like Japan, owing to the Yen depreciation.

Outlook for 2015 //

Whilst the profitability of GF Automotive is not affected as all activities are located outside of Switzerland, the sharp appreciation of the Swiss Franc in January would have, if present levels persist, an impact on GF Machining Solutions and GF Piping Systems. However, this impact is clearly reduced as the Euro is basically naturally hedged and financial hedges cover most of the net exposure in US Dollar for 2015.

Moreover, efficiency measures have been taken in Switzerland, purchasing in Euro has been further increased and relevant innovations have been introduced in all three divisions in order to maximize revenues and margins.

Finally, lower raw materials costs will have a positive impact on GF Piping Systems, production capacity in China at GF Automotive has been greatly increased and the order backlog at GF Machining Solutions is much higher than a year ago.

Forecasting has certainly become more challenging on account of the uncertainties regarding the level of the Swiss currency. Nevertheless, based on today’s knowledge and the measures we have taken, we expect to further increase our operating margin (ROS) to the 8% range whilst keeping our ROIC between 16% and 20%.

Personnel changes at the Board of Directors //

Upon reaching the retirement age for Board members, the term of office of Kurt E. Stirnemann ended at the Annual Shareholders’ Meeting of March 2014.

Kurt E. Stirnemann can look back to a successful career in the service of the company, first as President of GF AgieCharmilles as of 1996, then as CEO and Delegate of the Board of Directors of GF from 2003 to 2008 and as member of the Board from 2003 to 2014. The Board of Directors and the Executive Committee warmly thank Kurt E. Stirnemann for his long-time commitment to the company. We wish him all the best for the future.

Hubert Achermann, Swiss citizen, was elected to the GF Board at the Annual Shareholders’ Meeting 2014. Hubert Achermann is attorney at-law and held various key positions at KPMG, of which eight years as CEO. He is a member of a number of company boards and cultural trusts.

Amendments of the Articles of Association //

According to the new Corporate Governance directives and the associated adaptions of the compensation, the Board of Directors will propose at the Annual Shareholders’ Meeting of March 2015 a revision of the Articles of Association.

All together at the service of our customers //

We highly value the constructive feedback and the close cooperation we enjoy with our customers. Our before and after sales services stand at the heart of our constant efforts to keep in touch with them, adapt our offering and quicken our innovation pace.

We express our heartfelt gratitude to our shareholders for their continuing trust. Our deepest thanks go to our employees. Their willingness to act as a team, their dedication, flexibility and tremendous commitment to GF make outstanding achievements possible.

Signature by Andreas Koopmann

Andreas Koopmann
Chairman of the Board of Directors

Signature by Yves Serra

Yves Serra
President and CEO


Corporate Report 2014

Executive Committee GFThe GF Executive Committee in front of the new production machine for fittings with big dimensions at the GF Piping Systems plant in Schaffhausen (left to right): Pascal Boillat, Pietro Lori, Yves Serra (CEO), Roland Abt and Josef Edbauer.

“Today’s services bring the orders of tomorrow”


Is GF a service company?


Yves Serra: Yes. All three divisions of GF are selling solutions, not only products. Services are essential to our solutions offering, before and after sales are concluded. In fact, they often play a decisive role to convince customers and certainly to retain them. Today’s services bring tomorrow’s orders.

What does service mean for GF Piping Systems?


At first glance, service in this sector consists in the availability of all components and products wherever our customers need them. This we ensure by maintaining a proper stock in each region or each country. In fact, GF Piping Systems offers much more than that. GF Piping Systems has developed the most comprehensive handbook regarding the use of plastic piping systems for virtually any industrial application, a reference which is used by our customers to select, joint, and inspect every kind of plastic piping systems. Our skilled engineers provide technical support during the design phase as well as by selecting the right piping materials for aggressive media. We also train every year more than 10 000 customers worldwide to ensure a proper layout and installation. GF Piping Systems is present in virtually all sites where construction happens.

And for GF Automotive?


GF Automotive is specialized on offering lightweight solutions to its customers, the car and truck manufacturers. The division acts as a partner, developing its own materials and component designs in close contact with its customers. Its test centers can handle the largest car and truck components, even whole vehicles. Thanks to its extensive production facilities in Europe and China and production partners in the US and Japan, it offers to international car customers the same solutions worldwide. In addition, the division develops and builds its own molds and patterns and undertakes their maintenance including at our customers’ premises, 24 hours a day.

CEO Yves SerraYves Serra, President and CEO

“Services are essential to our solutions offering, before and after sales are concluded.”

GF Machining Solutions is a machine tool business. Can service be described as the delivery of spare parts?


Not only. Service starts with advising of our customers regarding their projects. For example the development of automated solutions, typically tailored to each client’s needs. GF Machining Solutions also offers in each and every one of its worldwide facilities the necessary test cuts to prove the validity of its offering. The exclusive training of customers’ operators upon delivery and the availability of application engineers plays thereafter a key role to maximize the efficiency and utilization of the proposed solutions. Finally, GF Machining Solutions ensures a prompt delivery of components and parts close to its customers and a whole array of preventive maintenance contracts for each and every one of its clients. All the above account for 30% of the turnover of GF Machining Solutions.

Where do you see opportunities for the service business of GF Piping Systems?


GF Piping Systems recently developed geolocalisation tools and services to enable customers to trace the location of the components they install, a real novelty in this business. We also see opportunities in the offering of novel plastic weld inspection technologies but also in innovations regarding leak detection across plastic pipe networks.

Will service be more relevant for GF Automotive in the future?


With the development of electric cars or even the strict application of CO2 reduction targets, the expertise of GF Automotive in lightweight component construction will certainly be an asset regarding the competitiveness of its offering. Also, the upstream support of our customers at the R&D and component design stage will become even more relevant. For example for aluminum die-casting components we also offer the relevant molds, an essential part of their design.

Can you describe how GF Machining Solutions can expand its service business?


With internet chips inside the machine controls, remote services will certainly be expanded, just like the services offered in cars. They include for example software additions and advanced diagnostics.

How can GF benefit from a further enhancement of its service business?


Service activities are less cyclical, especially in the machine-tool business. They are an important and growing source of revenues. Services offered worldwide are also a key differentiator, especially for our international customers in the car, aerospace or electronics sectors, for example. Finally, services bring us closer to our customers, to their needs and allow us to quickly adapt our offering, in other words to quicken our innovation pace.

Each customer can count on us

This team from the Competence Center in Irvine (USA) is exemplary for all 14 140 employees of GF who put their heart and soul into their work. Thanks to the personal dedication and passion of each of them, GF delivers exceptional products and services to customers worldwide.

We are GF

Customer Services

Individual service for your needs //

Customer needs are in the center of whatever GF does. From on-site training to adapted design and tailor-made processes – GF provides individual service which fits customers best.

GF Piping Systems

Customer Services

GF Automotive

Customer Services

GF Machining Solutions

Customer Services

Organization of GF

Georg Fischer Ltd, the Holding Company of the GF Corporation, is organized under Swiss law, headquartered in Schaffhausen (Switzerland), and listed on the SIX Swiss Exchange.

Board of Directors //

The ten members of the Board of Directors, elected individually by the Shareholders’ Meeting, are responsible for determining the Corporation’s strategic direction, the design of accounting, the financial controlling and financial planning. It appoints the Executive Committee and has ultimate responsibility for supervising and monitoring the management of Georg Fischer Ltd. All members of the Board of Directors are non-executive.

A shared corporate culture is becoming increasingly important with the spread of globalization.

Executive Committee //

The Chief Executive Officer is responsible for the management of the Corporation. Under his leadership, the Executive Committee addresses all issues of relevance to the Corporation, takes decisions within its remit and submits proposals to the Board of Directors. The Heads of the Divisions and the Corporate Staff Units are responsible for drafting and achieving their business objectives and for managing their units autonomously.

Corporate structure //

GF Corporation is organized in the three divisions GF Piping Systems, GF Automotive and GF Machining Solutions and the two Corporate Staff Units Finance & Controlling and Corporate Development. The Heads of the Divisions and the Corporate Staff Units are responsible for managing their businesses and for achieving their business objectives.

Corporate Center //

The CEO and the CFO form the Corporate Center in the narrower sense. The Corporate Center is closely involved in management, planning, IT, communications, finance, management development, and corporate culture and is supported in these tasks by a team of about 50 people. The Corporate Center ensures that risk management, transparency, corporate governance, sustainability, and compliance practices meet the requirements of the owners and the public, and it supports the Board of Directors in meeting its responsibilies.

Finances //

Corporate Finance & Controlling uses powerful information systems to ensure the time-critical financial management of the Corporation. A standardized system of financial reporting is used throughout the entire Corporation, guaranteeing immediate and complete transparency. Currency, interest-rate, and credit risks are monitored and managed at Corporation level.

Management development //

Strategically important competencies and information are shared and made available throughout the Corporation. Considerable importance is attached to internal training and to the focused nurturing and development of leaders and managers. 

Communication //

Thanks to the long history and the consistent enhancements, the Corporation has a strong brand with GF. In 2013, the company has implemented a rebranding and an alignment of its brand architecture. As part of this rebranding, a new Corporate Design will be adopted worldwide throughout all three divisions by 2015. The Corporation builds confidence in its products and services with an open and active communication policy to the customers, employees, media, analysts, and shareholders.

Corporate values //

Shared corporate values are the basis for overall sustainable development and are becoming increasingly important with the spread of globalization. The Corporate center conveys and promotes the fundamental corporate values throughout the company, thereby nurturing and fostering its corporate culture.

Corporate Governance //

For detailed information about the Corporate Governance of GF see pages 42 to 51.

Download Organization of GF

Corporate Governance

The Board of Directors and the Executive Committee of GF attach great importance to good Corporate Governance in the interest of shareholders, customers, business partners, and employees. The implementation and ongoing improvement of the generally accepted principles of Corporate Governance ensure the necessary transparency to enable investors to judge the quality of the Corporation. This Report provides information on structures and processes, areas of responsibility and decision-making procedures, control mechanisms, as well as the rights and obligations of the various stakeholders.

Contents //

The present publication fulfills all obligations of the relevant SIX Swiss Exchange directive on information relating to Corporate Governance in terms of content and order and is based on the Swiss Code of Best Practice for Corporate Governance of Economiesuisse, the Swiss Business Federation. The Compensation Report is presented in a separate chapter on pages 52 to 61. All data and information apply to the cutoff date of 31 December 2014, unless otherwise noted. Any changes occurring before the copy deadline on 13 February 2015 are listed at the end of this chapter. Any changes occurring after the copy deadline can be found on our website. GF also publishes the Articles of Association of Georg Fischer Ltd, the internal Organization and Business Rules, its policies, and much more information online Corporate Governance - Policies.

Compensation Report

Introduction by the Chairman of the Compensation Committee

Dear shareholder

On behalf of the Board of Directors of GF and of the Compensation Committee, I am pleased to present the 2014 Compensation Report.

2014 has been a good year for GF; due to improved productivity, profitability was increased. All divisions achieved a ROIC well above their financial costs.

From a compensation perspective, the Committee has prepared the amendments to the Articles of Association relative to the requirements of the new Ordinance against excessive pay. These amendments will be submitted to shareholders’ vote at the upcoming Annual Shareholders’ Meeting in parallel to the binding shareholders’ vote on the compensation amounts of the Board of Directors and the Executive Committee. Further, the Compensation Committee has undertaken a thorough review of the compensation model of the Board of Directors, considering that it has been in place for several years. Based on this review we will simplify the  remuneration structure of the Board of Directors in 2015.

At the upcoming Annual Shareholders’ Meeting, we will ask you to approve the principles of compensation, included in the Articles of Association as well as to approve prospectively in a binding vote the maximum amounts of compensation for the Board of Directors and for the Executive Committee. In addition, we will also ask you to vote on a consultative basis on the Compensation Report 2014.

Looking ahead, the Committee will continue to review and fine-tune the compensation programs, in order to ensure that they remain aligned with market levels and the business strategy of GF as well as the long-term interests of our shareholders, while being compliant with the various regulations.

We would like to thank you for sharing your views on compensation with us and we trust that you will ind this report interesting and informative.

Sincerely

Ulrich Graf

Ulrich Graf, Chairman of the Compensation Committee

Contents //

The Compensation Report provides information about the compensation policy, the compensation programs, and the process of determination of compensation applicable to the Board of Directors and to the Executive Committee of GF. It also includes details on the compensation payments related to 2014. This report is written in accordance to the Ordinance against excessive pay in stock exchange listed companies, the standards related to information on Corporate Governance issued by the SIX Swiss Exchange and the principles of the Swiss Code of Best Practice for Corporate Governance of Economiesuisse.

Compensation policy

Overarching principles //

For the Board of Directors, the compensation policy is designed to ensure their independence in exercising their supervisory duties and foresees a fixed compensation only.

For the Executive Committee, the compensation policy is designed to attract, retain, and motivate talented individuals, along the following principles:

  • Fairness and transparency
  • Pay for performance
  • Long-term orientation and alignment to shareholders’ interest
  • Market competitiveness

For more information about compensation priciples see page 53 of the Business Report 2014.

Compensation Governance

Compensation Committee //

The Compensation Committee consists of three non-executive Board members who are elected yearly and individually by the Annual Shareholders’ Meeting for a one-year period until the next Annual Shareholders’ Meeting. At the 2014 Annual General Meeting, Ulrich Graf (Chairman), Isabelle Welton and Zhiqiang Zhang were confirmed as members of the Compensation Committee. The Committee supports the highest corporate level and regularly reviews the guidelines governing compensation of the executives. The Committee also proposes the amount of compensation to be paid to the Board of Directors, to the CEO and to the other members of the Executive Committee and prepares the related motions for the Annual Shareholders’ Meeting.

The Compensation Committee convenes as often as necessary, but at least once a year. In 2014, the Committee held three meetings of approximately one hour and a half each:

  • In the February meeting, the Committee evaluated the business performance in the previous business year against the pre-set objectives, and prepared a proposal to the Board of Directors on the short-term incentive to be paid to the Chief Executive Officer and to the Executive Committee members. In the same meeting, the Committee determined the business objectives for the 2014 business year for the Chief Executive Officer and reviewed those of the Executive Committee members, before submitting them to the Board of Directors for approval;
  • In the September meeting, the Committee reviewed the overall compensation policy and discussed a new compensation model for the Board of Directors. The Compensation Committee also reviewed the benchmarking analysis of the compensation of the members of the Executive Committee. Further, the Committee reviewed the proposed provisions on compensation to be included in the Articles of Associations in order to comply with the requirements of the Ordinance against excessive pay in stock exchange listed companies;
  • In the December meeting, the Committee reviewed and approved the target compensation for the following business year for the members of the Executive Committee based on a proposal from the CEO. The Committee determined the target compensation of the CEO for the next business year based on a proposal from the Chairman of the Board and prepared a proposal to submit to the Board of Directors for approval. The Committee also approved the new compensation model for the Board of Directors for the next business year. Further, the Committee determined the compensation amounts of the Board of Directors and of the Executive Committee to be submitted to shareholders’ vote at the 2015 Annual Shareholders’ Meeting. Finally, the Committee reviewed and approved the Compensation Report.

In 2014, with one exception, all Committee members attended all meetings. The CEO and the Head of Corporate Human Resources attended the Committee meetings in advisory capacity. The CEO did not attend the meeting when his own compensation or performance was discussed. The Chairman of the Committee reported to the Board of Directors after each meeting on the activities of the Committee. The minutes of the Committee meetings are available to all members of the Board of Directors.

On behalf of the Board of Directors, Internal Auditing annually reviews the compliance of the compensation decisions made with the compensation regulations for the Executive Committee and the Board of Directors, the Organizational Rules and the Articles of Association.

The Committee may call in external compensation specialists to obtain independent advice and/or to get benchmarking compensation data. In the year under review, the Compensation Committee mandated Hay Group to conduct a benchmarking analysis on both the compensation of the Board of Directors and of the Executive Committee.

For more information on Meeting Schedules and Levels of Authority please see page 54 of the Business Report 2014.

Method of determination of compensation //

The elements and levels of the compensation of the Board of Directors and the Executive Committee are reviewed regularly and are tailored to the relevant sector and labor market in which GF competes for talent. For the purpose of comparison, the Compensation Committee relies on compensation surveys published by independent consulting firms and on publicly available information, such as compensation disclosures from comparable companies. Comparable companies are defined as companies with similar size in terms of market capitalization, sales, number of employees, and geographic scope, which operate in similar business segments and are headquartered in Switzerland.

In 2014, a thorough review of the compensation of the Board of Directors has been conducted by Hay Group in order to assess its competitiveness in terms of level and structure. A peer group of selected companies, all Swiss multinational companies of the industry sector listed on the Swiss stock exchange (SIX), has been defined. The peer group consists of Autoneum, Bucher Industries, Dätwyler, Geberit, Kaba, Oerlikon, Rieter, SGS, Sika, Sonova, and Sulzer. On the basis of this benchmarking analysis, the compensation model and levels for the Board of Directors have been adjusted, effective for 2015. Those changes are explained in more detail in the section “Changes to compensation model in 2015”.

In 2014, a benchmarking analysis of the compensation levels for the Executive Committee has been conducted by Hay Group on the basis of the Hay Group job evaluation methodology and the related compensation data. For the CEO, an additional benchmark has been done on the basis of the compensation disclosure of the companies of the peer group described above.

The Compensation Committee also takes into consideration the effective business and individual performance while determining the compensation amounts to be paid to the Chief Executive Officer and to the other members of the Executive Committee. Individual performance is assessed through the annual Management By Objectives (MBO) process, where individual objectives are defined at the beginning of the year and the achievement against those objectives is evaluated at the end of the year. The objective setting and the performance assessment of the members of Executive Committee are conducted by the CEO and are approved by the Chairman of the Board. The Chairman of the Board determines the objectives and evaluates the performance of the CEO.

Architecture of compensation

Compensation of the Board of Directors //

The compensation regulation applicable to the Board of Directors is reviewed periodically based on competitive market practice and retains its validity for several years.

In order to guarantee the independence of the members of the Board of Directors in executing their supervisory duties, their compensation is fixed and does not contain any performance-related component. The annual overall compensation for each member of the Board of Directors depends on the responsibilities carried out and the time effectively spent in the year under review. The compensation is partially delivered in cash (fee) and in restricted shares.

(For Compensation Models see page 56)

Members of the Board receive a fixed fee and additional fees for special tasks such as committee chairmanship, vice-chairmanship or membership, and any other extraordinary activities/meetings. The fees are paid in cash in January for the previous calendar year.

In addition, each member of the Board receives a fixed number of Georg Fischer shares. The value of the share-related compensation is calculated on the basis of the closing share price on the last trading day of the reporting year. Those shares are granted in January for the previous calendar year and are restricted for a period of five years.

Finally, members of the Board also receive a lump-sum allowance to cover their business expenses. They do not receive additional reimbursements of business expense beyond actual expenditures for business travel.

The compensation of the Board of Directors is subject to regular social security contributions and is not pensionable. This compensation model has been modified on the basis of the review conducted in 2014.

The new compensation model is explained in the section “Changes to the compensation model in 2015” and is effective for 2015.

Compensation of the Executive Committee //

The principles of compensation of Executive Committee members, as described above in the section “Principles of compensation”, are set out in a regulation and retain their validity for several years. They were last reviewed by the Compensation Committee in 2012.

The compensation of the Executive Committee includes the following elements:

  • Fixed base salary in cash
  • Performance-related short-term incentive in cash
  • Share-based remuneration (long-term incentive)
  • Benefits such as pension and social insurance funds

For further information on Compensation Models see page 57 in the Business Report 2014.

Fixed base salary //

The fixed base salary is determined primarily on the basis of the following factors:

  • Scope and complexity of the role, as well as the skills required to perform the role;
  • Skills, experience and performance of the individual in the role;
  • External market value of the role.

Fixed base salaries of the Executive Committee members are reviewed every year on the basis of those factors and adjustments are made according to market developments and to the company’s affordability.

Short term incentive //

The short-term incentive is a variable incentive designed to reward the achievement of business objectives of the Corporation and its divisions, as well as the fulfillment of individual performance objectives as defined within the MBO process, over a time horizon of one year.

The business objectives are set by the Board of Directors in accordance with the long-term strategy. They include absolute financial figures and are set for a period of several years in order to ensure sustainable and long-term performance. Currently, the business objectives are: organic sales growth (excluding acquisitions and divestures), EBIT margin (EBIT in relation to sales), Return on Invested Capital (ROIC), and asset turnover (sales in relation to average net operating assets). For each objective, the Board of Directors sets a threshold level of achievement under which there is no payout, and a ceiling above which the payout is capped. The payout factor for achievement levels between the threshold and the ceiling is calculated by linear interpolation. While the thresholds and the ceilings are valid for a period of several years, the achievement against those is measured on a yearly basis and leads to a payout factor for this portion of the variable incentive. The threshold for the ROIC is set on a level clearly over the average cost of capital of the Corporation.

The individual objectives are set within the MBO process at the beginning of the year. They are clearly measurable. At the end of the year, the achievement against each individual objective is assessed and leads to a payout factor for this portion of the variable short-term incentive.

For  more information on the weighting of the business and individual objectives please see page 58 of the Business Report 2014.

The maximum short-term incentive is expressed as a percentage of the annual fixed base salary and amounts to 110% for the CEO and 90% for the other members of the Executive Committee. The expected level of performance (fulfillment of the multi-year business objectives and of the individual objectives) corresponds to a short-term incentive payout of approximately 60% of the maximum short-term incentive.

Share-based remuneration (long-term incentive) //

The purpose of the share-based remuneration is to align the interest of the Executive Committee with the shareholders’ interests. The CEO receives 850 restricted shares and each of the other Executive Committee members receives 300 restricted shares. The shares are granted in January of the following year and are subject to a blocking period of five years. The grant value of the share is based on the closing share price on the last trading day of the reported business year. The shares are automatically unblocked in case of termination, liquidation, or change of control.

The underlying shares of the share-based compensation program are either treasury shares or are repurchased on the market.

Benefits //

Benefits consist primarily of retirement and insurance plans that are designed to provide reasonable retirement remuneration as well as a reasonable level of protection against risks such as death and disability. All members of the Executive Committee have a Swiss employment contract and participate in the pension fund of GF offered to all Swiss-based employees, in which the fixed base salary is insured. The pension fund exceeds the legal requirement of the Swiss Federal Law on Occupational Retirement, Survivors and Disability Pension Plans (BVG) and is in line with commensurate market practice. For top-management positions, including the members of the Executive Committee, an early retirement plan is in place. The plan is entirely inanced by the employer and is administered by a Swiss foundation. Beneficiaries may opt for early retirement from the age of 60, provided that they are enrolled with the Swiss Social Security and have been employed by GF at least for ten years.

Members of the Executive Management do not receive any special benefits. They are entitled to a representation lump-sum allowance and to reimbursement of business expenses in accordance to the expense rules applicable to all employees at management levels employed in Switzerland. The expense regulation has been approved by the relevant cantonal tax authorities.

Contractual terms //

The contractual agreements with the CEO and the Executive Committee members foresee a notice period of maximum twelve months. There are no entitlements to severance payments.

Remuneration for the 2014 business year

Board of Directors //

The members of the Board of Directors received cash compensation of CHF 850 thousand in the year under review (previous year: CHF 1’041 thousand). In addition, a total of 1’650 Georg Fischer registered shares with a market value of CHF 1’038 thousand were allocated as share related compensation. In the previous year, the allocation had been 1’600 Georg Fischer registered shares, equivalent to a market value of CHF 1’004 thousand. Together with other benefits, the total compensation paid to the Board of Directors in the year under review amounted to CHF 2’034 thousand (previous year: CHF 2’224 thousand).

For detailed information on the disclosure of compensation to the Board of Directors in accordance with the Ordinance against excessive pay in Swiss stock exchange listed companies please see page 59 in the Business Report 2014.

The compensation paid to the Board of Directors for the year 2014 was below that of the previous year due to a lower number of meetings in 2014, whereas the share value remained at a similar level.

In the year under review, Mr. Kurt E. Stirnemann, member of the Board of Directors until the Annual Shareholders’ Meeting of 19 March 2014, was compensated for the time 1 January through 19 March. Mr. Hubert Achermann, member of the Board of Directors as from 20 March 2014, was compensated for the time 20 March through 31 December. No further compensation was paid to former members of the Board of Directors. No compensation was paid to parties closely related to members of Board of Directors.

Executive Committee //

The members of the Executive Committee received cash, share-related compensation, social security and pension contributions amounting to CHF 6.6 million for the year under review (previous year: CHF 6.3 million). 2’050 Georg Fischer registered shares (par value of CHF 1) with a value of CHF 1’289 thousand, based on a share price of CHF 629 at year end 2014, were allocated to members of the Executive Committee for the year under review (previous year: 1’750 Georg Fischer registered shares with a value CHF 1’098 thousand).

Detailed information on the disclosure of compensation to the Executive Committee in accordance with the Ordinance against excessive pay in stock exchange listed companies can be found in the Business Report 2014 on page 60.

Total compensation for the Executive Committee and the CEO and the other members of the Executive Committee in 2014 was 6% higher than in 2013. The increase is explained by the following factors:

  • The number of shares granted has been increased from 750 to 850 shares for the CEO and from 250 to 300 shares for the other members of the Executive Committee, while the value of the shares slightly increased from CHF 627.50 in 2013 to CHF 629.00 in 2014.
  • The short-term incentive related to the financial results of the Corporation and the divisions and to the individual performance was of similar level in 2014 compared to 2013. Consequently, the overall short-term incentive percentage ranges from 49% to 54% of the base salary for the Executive Committee members and amounts to 63% of the base salary for the CEO.
  • The fixed remuneration was slightly adjusted in order to keep competitive levels that are in line with the market practice of our industrial sector.
  • The employer contributions to social security and to company retirement plans have increased following the adjustments of fixed remuneration and the increase of number of restricted shares awarded. A significant portion of the social security payments of the employer to the Swiss social security system (CHF 281 thousand) represents a solidarity payment as the individuals will not get any return or benefit due to these payments.

In the year under review, no compensation was paid to former members of the Executive Committee. No compensation was paid to parties closely related to members of Executive Committee.

Shareholdings of the members of the Board of Directors and of the Executive Committee //

The information on shareholdings of the members of the Board of Directors and of the Executive Committee is included on page 118 of the Notes to the Financial Statements of Georg Fischer Ltd.

Loans to members of governing bodies //

Neither Georg Fischer Ltd nor its Corporate Companies granted any guarantees, loans, advances, or credit facilities to members of the Board of Directors or the Executive Committee or related parties in the year under review. As of 31 December 2014, no loans were outstanding.

Change to Board of Directors’ compensation model in 2015

In 2014, a thorough review of the compensation model applicable to the Board of Directors has been conducted considering that the current model is in place since 2010. Hay Group was mandated to provide a benchmarking analysis both on the structure and levels of compensation compared to a peer group of companies including Autoneum, Bucher Industries, Dätwyler, Geberit, Kaba, Oerlikon, Rieter, SGS, Sika, Sonova, and Sulzer. The results of the analysis showed that the compensation levels at GF are below market practice compared to the peer group. Further, the compensation structure is more complex than typical compensation models currently in place within the peer group. Consequently, it has been decided to streamline the compensation structure by remunerating gross instead of net, by providing a fixed fee for committee work instead of per meeting fees, and by discontinuing the expense lump-sum; actual expenditures will be reimbursed.

The new compensation model effective for the compensation period starting 1 January 2015 can be found on page 61 of  the Business Report 2014.