The 2013 business year underscores the importance of two elements of the Strategy 2015: focusing the Corporation on less cyclical business activities and strengthening its presence in growth markets. At GF Piping Systems, business in Asia, which was strong especially in the second half, offsets the weather-related sluggishness of European markets in the first four months of the year. At GF Automotive, foundry capacity in China was fully utilized, whereas in Europe, especially in the first six months, the passenger vehicle market was weak. In the last quarter, GF Automotive benefited from a brisk upturn in sales in the truck segment. At GF Machining Solutions, sales in Europe and the US re-covered, whereas emerging markets such as India and Brazil felt the impact of exchange rate turbulences.
GF in 2013
For the 2013 business year, GF switched from the IFRS accounting standard to Swiss GAAP FER. The changeover was made in view of the distortions that the revised IFRS accounting standards would have caused. Under Swiss GAAP FER, for instance, the consolidation of the 50% share in the balance sheet and income statement of the CHF 400 million Chinaust joint venture can be retained. Moreover, Swiss GAAP FER largely eliminates any volatility in equity due to surpluses or deficits in the funding of pension plans, which would have had to be recognized in equity according to the revised IFRS standard. As part of this changeover, the registered shares of Georg Fischer Ltd have been traded on the Domestic Standard of SIX Swiss Exchange Ltd since 28 June, though they are still part of the SMIM and SPI Indices of the Swiss Exchange.
Currency effects //
Per end 2013, currency fluctuations had a positive effect of CHF 25 million on sales. Mainly, this was due to the trend of the Euro (+CHF 45 million), while the USD and other currencies (Turkey, India, Japan, and Brazil) had a negative impact of CHF 20 million on sales.
GF posted sales that were up 2%, on a like-for-like basis, to CHF 3.77 billion (2012: CHF 3.72 billion). GF Piping Systems reported a sales growth of 8% (2.7% on a like-for-like basis), of which CHF 665 million came in the first half and CHF 737 million in the second half year. Despite a strong final quarter, sales at GF Automotive were slightly lower in the second half – at CHF 746 million – than in the first half (CHF 752 million). Overall, the sales increase came to 0.5% on a like-for-like basis. GF Machining Solutions posted sales of CHF 447 million in the second half, compared with CHF 420 million in theperiod from January to June. All in all, the division’s sales rose by 3% on a like-for-like basis.
Operating profit rose from CHF 222 million in 2012 to CHF 251 million (+13%) in 2013. The second half benefited from better market conditions than the first semester, especially at GF Piping Systems and GF Automotive. As a result the EBIT rose to CHF 133 million against CHF 118 million in the first half year. The operating margin (return on sales, ROS) rose from 6.0% to 6.7%.
Net profit //
The divestment of the gravity die-casting operation in Austria, which was not a core business, resulted in a one-off exceptional charge of CHF 26 million. Net profit came to CHF 145 million, which was 5% higher than the 2012 figure of CHF 138 million. All three divisions again clearly generated value for our shareholders.
GF defined an ROIC in the 15% range in the framework of the Strategy 2015. The figure is being increased to the range of 16% to 20%, an adaptation that reflects the change to the Swiss GAAP FER standards. In 2013, ROIC came to 16.7% (2012: 15.7%).
Free cash flow //
Cash flow from operations came to CHF 309 million in 2013 (2012: CHF 230 million). Free cash flow stood at CHF 108 million compared with CHF 19 million in 2012.
Net debt //
Net debt rose slightly from CHF 334 million to CHF 352 million. The increase was mainly due to the acquisition of Hakan Plastik (Turkey).
The Board of Directors proposes to the Annual Shareholders’ Meeting the distribution of a dividend of CHF 16 per share (+CHF 1). The dividend is payable in part from a capital contribution reserve and in part from a reduction from CHF 10 to CHF 1 in the par value of the GF share. The proposed dividend, which is scheduled for payment on 4 July 2014, is equivalent to a payout ratio of 47%.
Value added //
The gross value added came to CHF 1.29 billion, higher than in 2012 (CHF 1.23 billion). Europe accounted for 75% of the total (2012: 77%), with Switzerland (31%), Germany (24%) and Austria (13%) making large contributions. Asia and the Americas accounted for 24% of value added. Personnel costs came to CHF 914 million, slightly lower than in 2012 (CHF 915 million).
In August 2013, the Corporation emitted two new bonds of HF 150 million each with maturities of five and nine years and coupons of 1.5% and 2.5%. The bond issue took advantage of the favourable conditions in the capital markets in order to refinance the 2009–2014 4.5% bond of CHF 300 million due September 2014.
Total assets //
Total assets come to CHF 3.1 billion. The equity ratio is still a solid 31%, though it is lower than in 2012 (37%) owing to the increase in current liabilities related to the two new bond issues and the impact of the new accounting standard Swiss GAAP FER.
GF assumes that market conditions will remain volatile in the months to come, even though an uptrend in some of the markets relevant for the Corporations was observed in the second half of 2013.
The headcount at year-end 2013 came to 14 066 (+4.9%), virtually back
at the level before the divestment of the GF Automotive aluminum sand
casting business in the fall of 2012. The decline of about 450
employees as a result of this divestment was offset by the new
employees from Hakan Plastik (+710). The headcount at
GF Automotive will fall further owing to the divestment of the gravity die-casting operations in Austria that was announced in January 2014. With around 3 500 employees, Asia has become the market with the highest number of employees, followed by Germany with 3 200, Switzerland with 2 500 and Austria with 1 900.
Strategy and targets //
The implementation of the strategy launched in 2011 continues to proceed according to plan. Progress was made in 2013 towards achieving a better balance portfolio. GF Piping Systems’ share of the Corporation’s total sales has risen steadily in recent years and has now reached the 37% mark. The aim is to increase the division’s share to 40% to 45% by 2015 through acquisitions and penetration into new markets. With the acquisition of Hakan Plastik, Cerkezköy (Turkey), a leading supplier of plastic piping systems in building technology and water utilities, GF Piping Systems has taken a major stride to generate further growth in Turkey, the Middle East and Eastern Europe.
The company, acquired in July, will facilitate access to these
attractive growth markets and offers a very good match with the
product range of GF Piping Systems. Further acquisitions are
envisaged, provided that the market conditions and business
environment are right.
At GF Automotive, efforts will be focused on increasing productivity in Europe and further expansion in China. The division’s share of sales came slightly down to the 40% mark for the first time, mainly on account of the 2012 divestments in Germany. The share of GF Machining Solutions, where focusing on less cyclical markets is in full swing, remained stable at 23%. The Corporation further reduced its dependence on Europe. Asian markets increased their share of total sales from 20% in 2012 to 21% in 2013. China has an overall percentage share of 16%.
GF took its first steps in China in 1993 and now has 16 production plants as well as sales offices and research and development centers throughout China. By 2015, China’s share of total sales is expected to exceed 20%.
Outlook 2014 //
GF assumes that market conditions will remain volatile in the months to come, even though an uptrend in some of the markets relevant for the Corporation was observed in the second half of 2013. Its portfolio will also be more balanced with GF Piping Systems and GF Automotive each making for ca. 40% of total sales. Barring unforeseen circumstances, GF expects both sales and net profit to further grow in 2014. The Corporation confirms the profitability targets defined in Strategy 2015, but the ROIC target is being raised from 16% to 20% due to the changeover to the Swiss GAAP FER accounting standard.The target of 8% to 9% is reconfirmed for the EBIT margin (ROS).
GF Piping Systems
The division posted sales of CHF 1.4 billion in 2013. This works out to an increase of 8%, of which 5% was due to the newly acquired Hakan Plastik, integrated as of 1 July. Operating profit rose from CHF 135 million to CHF 141 million, an increase of 4%. This equates to an ROS margin of 10.1%. GF Piping Systems had a ROIC of 18.7%, compared to 18.6% in 2012.
GF Piping Systems had to confront difficult weather conditions in the first four months both in Europe and in North America; this mainly impacted Utility, the unit that generates the highest sales with CHF 540 million. Industrial applications recovered in the second half of the year in all regions. In the Building Technology unit, markets such as Switzerland and Germany were stable, whereas China reported strong growth. Other European markets, for instance Italy and the Netherlands, were sluggish, but in countries like Sweden and Spain the pace of growth picked up considerably in the second half of the year. The second half also saw a substantial momentum in Asia, especially in Utility.
For 2014, on the basis of the trend towards year-end, the division expects at least a partial recovery in those countries that had performed sluggishly in 2013. The integration of the product range of the newly acquired Turkish firm Hakan Plastik should have a positive impact on the sales of the European sales companies. In North and South America, a positive trend is expected in both the Industry and Utility units, due in large measure to the strong positions held by products for cooling and air conditioning, in the energy and in the marine segment. Sales in China are expected to continue to grow, driven by a product range that has been specially adapted to the local market and by the ongoing success of the Building Technology unit. GF Piping Systems plans to launch a number of new products in 2014. Utility will benefit from various new, large-diameter products. Water quality and water hygiene are major focal points in the activities of Building Technology.
The division’s sales fell below the CHF 1.5 billion mark due to the divestment of the aluminum sand casting business end of 2012. The business with passenger cars generated about two thirds of the sales. Operating profit rose from CHF 53 million to CHF 70 million, a 32% gain leading to an ROS of 4.7% (2012: 3.4%). The ROIC came to 16.1%, clearly above the 12.1% in 2012.
While passenger vehicle sales in Europe were flat, GF Automotive
benefited from an upturn in the truck business towards the end of the
year. The introduction of the stricter Euro 6 norms is driving demand
for components that contribute to reducing vehicle weight (and by the
same token CO2 emissions). As a result, GF Automotive, which
focused on the development of lightweight components, has also gained market share in the truck sector. The division in-creased its sales once again in China, while Germany has kept its leading role as market number one for GF Automotive, holding a 59% share of total sales. The cost-cutting measures of around CHF 25 million have already led to savings in 2013, but their full impact will be felt in 2014.
Following the sale of its gravity die-casting business, GF Automotive can now focus all its efforts on ductile iron sand-casting and light-metal pressure die-casting. In China, where the capacity is fully utilized, a 50% expansion is proceeding according to plan. This will enable the division to continue to participate in the expected growth of China’s car market. Efficiency is being constantly enhanced: following investments in an ultramodern molding plant in Mettmann (Germany), work will start in 2014 on building a similar line in Singen (Germany). The investments in these two German facilities will maintain competitiveness in this key market.
GF Machining Solutions
Focusing the division on less cyclical market segments such as aerospace, medical technology, and smartphones/tablets is in full swing. Sales rose by 3% from CHF 842 million to CHF 867 million, not least on the back of a strong final quarter. Operating profit improved by 13% from CHF 45 million to CHF 51 million, which works out to a ROS of 5.9% (2012: 5.3%). The ROIC came to 15.2%, compared to 16.4% in 2012.
In geographic terms, the growth drivers were America and Europe, where sales rose by 8% and 5% re-spectively, whereas markets in Asia stagnated on the whole. Europe maintained its share of sales at 48%, while the Americas region increased its share to 18%. In a product segment breakdown, Milling showed the biggest growth, up 8%, with sales coming to CHF 245 million. Electric discharge machines, however, remained the strongest segment, with sales of close to CHF 300 million.
GF Machining Solutions will continue to focus systematically on the market segments mentioned earlier. The division will further increase its competitiveness by launching additional new products. The offering in the area of Customer Services is being further expanded in order to help customers increase their productivity.
Market and Customers
Global market presence
Asia, in particular China, remains a strong growth engine. The Asian markets’ share of total sales continued to grow in 2013 and now accounts for 21% (2012: 20%). GF’s largest market in the year under review was again Germany with a 31% share of sales (2012: 34%). The companies in Europe accounted for 61% of sales (2012: 64%). Owing to the Asian markets’ growing global presence, the headcount in Asia increased over the last years; with 25% of employees Asia is now the market region with the highest number of employees (Germany 23%).
Research & Development //
The three divisions have 20 research & development centers worldwide, five each in the Americas and Asia and ten in Europe, employing some 600 people altogether. This decentralization ensures a quick reaction to customers’ needs. In 2013, the divisions invested a total of about CHF 100 million in R&D, and GF submitted 46 patent applications in 2013.
In 2013, GF Piping Systems in Tustin (USA) was awarded “Supplier of the year” for pipes, valves and fittings by Affiliated Distributors (AD), a community of independent distributors and manufacturers of construction and industrial products. Chinaust, joint venture partner of GF in China, received the honor of “2013 Excellent Supplier” prize from Geely. By presenting this award, the Chinese corporation acknowledged the excellent level of cooperation and communication within the supplier relationship. The innovation performance of GF Piping Systems in the promising algae technology was recognized with the regional IVS Innovation Award in February 2013. GF Piping Systems received the award for the development of pipe based bioreactors for microalgae cultivation. This innovation project was already honored with the international innovation award “Gold SolVin Award” in 2010.
GF Automotive won the first prize at the International Magnesium Association (IMA) Lightweight- esign Awards last May in China. The rooftop header with a wall thickness of 1.2 to 2.5 mm, as a lightweight magnesium die-cast component for Opel’s convertible model Cascada convinced the jury. The part used in a soft top is coated with folding fabric and plays the central role in the attachment of the rooftop to the windshield. Due to the use of magnesium, the wall thickness could be adapted to particular requirements and complex design geometries. Magnesium is currently the lightest metal material that can be used in large series production. The results are significant cost and weight reductions. he component was top of the category “Cast Component Design”, an award which the division has won for the second time already.
Trade fairs //
Trade fairs are of crucial importance for GF. It is where GF can show customers that we mean what we say with the new GF brand positioning when we tell them that it’s “All about you”. The divisions participated in about 130 trade fairs in 2013.
In 2013, GF Piping Systems took part in more than 50 trade fairs and
exhibitions worldwide. ISH in March, the world’s leading trade
fair for building, energy, aircondi-tioning technology as well as
renewable energies, was one of the first highlights in the strong
trade fair year. In Frankfurt (Germany), GF Piping Systems has once
again positioned itself as a leading provider of system solutions for
the complete water cycle – from source to point of con-sumption.
This message was picked up and repeated at the Aquatech in Amsterdam
(Netherlands) in November 2013. With its presence at the world’s
leading trade ex-hibition for process, drinking and waste water,
GF Piping Systems completed its successful exhibition year with the focus on water applications.
Having been present at ten different smaller trade fairs, GF Automotive presented its key topic lightweight at each of them. This also served to further strengthen the image of GF Automotive as a lightweight specialist.
More than 700 guests from around the world gathered at the companies’ plant in Losone (Switzerland) last March for GF Machining Solutions’ International Technology Show. Among other innovations, the latest entries in EDM (die-sinking, wire- and hole-drilling), laser texturing and high speed/high efficiency milling were presented to the guests. “Unleash your potential” was the main topic of GF Machining Solutions at the EMO 2013 last September in Hannover (Germany). Customer success stories, new and innovative products, solutions and services as well as new ways in which customers can enhance their businesses in fast-growing market segments were showcased. Visitors to the stand had access to the industry’s broadest portfolio of machining solutions and process expertise.
In 2014, too, the three divisions will take part in more than 100 trade fairs worldwide, to further broaden their contacts with existing and potential customers.
With the launch of the new corporate design, all three divisions fall under a uniform GF brand. At the same time, the brand positioning was adjusted with the core message “All about you” putting the customer to the forefront. Various design elements (such as fresher shades of coloring, new fonts and GF employees as tandard bearers of the corporate image) aim at underlining the core message and support the implementation of the 2015 strategy. One further element of the new GF image was the renaming of GF AgieCharmilles to GF Machining Solutions, which took effect on 1 January 2014. However, no change has been made to the logo, which has been protected by copyright since 1902.
Products and Processes
In the last 15 months, GF Piping Systems established Centers of Excellence for Automation in key markets such as USA, Germany, China, India, and Japan. Several actions and measures have been successfully taken to further extend its automation range, to strengthen its automation expertise and to conso-lidate its role as a key player in piping systems automation. The new 2260 Ultra-sonic Level Transmitter, presented at the Aquatech 2013, was one of the key product launches in the automation portfolio. The innovative sensors precisely measure fluid levels by means of ultrasound – without any contact at all.
Big dimensions //
In June 2013, GF Piping Systems started the production of 3.5 meter diameter polypropylene pipes in the Haining plant of the joint venture Chinaust. GF Piping Systems was the first company in China to offer a polypropylene drainage system of such size. Together with the market introduction of the polyethylene ELGEF Plus branch saddle system topload for largepipe installations up to dimensions of d2000 mm in water and gas utilities, GF Piping Systems showcased its expertise in large dimensions.
Acquisition of Hakan Plastik //
With the acquisition of Hakan Plastik in May 2013, GF Piping Systems was able to enlarge its portfolio with a new attractive product package for building technology and water infrastructure. A whole array of products ideally complements the existing offering and opens up new sales markets, in particular in Emerging Markets and the Turkish fast growing market.
The aluminum high-pressure die-casting process used by GF Automotive replaces the conventional welded sheet metal assembling for suspension strut domes. While integrating all functions, the casting component fea-tures a new design allowing for better functionality and reducing the weight up to 50% compared with a conventional sheet metal assembly. The GF Automotive light structural parts will be built into several new Audi models, for which Audi placed a major order of over CHF 400 million.
In the automotive, aerospace, connector technology, medical, and watch making industries, component miniaturization and precisions are a key topic. The precision of geometric shapes holds a major importance for the successful operation of the finished products. To meet these increased requirements, new products such as the new FORM 200 mS from GF Machining Solutions offer new features in terms of precision, speed, and productivity.
GF controls risks by means of risk management. Risk management includes the systematic identification, evaluation, and reporting of strategic, oper-ational, financial, market, management, and resources and sustainability risks as well as the determination of adequate measures in order to mitigate the risks identified at the level of the Corporation, the divisions and the Corporate Companies. The criteria applied in assessing risks include their impact and the probability of their occurrence.
The strategic risks are assessed by the Board of Directors, together with the Executive Committee, whereas all other risks are handled by the management of each Corporate Company, the management of each division and finally by the CEO and the Executive Committee. Risk management is largely integrated in existing planning and manage-ment processes. To coordinate all activities in the field of risk management and to improve the quality of risk reporting, a Risk Council consisting of representatives of the divisions and the Corporate Staff under the leadership of the Chief Risk Officer has been established. The Risk Council coordinates all activities in the area of risk management and secures the quality of the risk management data.
Risk analysis and standards //
In production, particularly in the foundries, risks can never be completely ruled out. The careful analysis and mitigation of risks increase process security and thus improve the reliability of deliveries to customers. GF gives great importance to these aspects. Therefore, and in close consultation with the Corporate Companies and the divisions, the Service Center Risk, Tax, & IP Services has implemented technical and organizational standards as well as guidelines regarding Business Continuity Management for the entire Corporation. Business Continuity Management including business impact analysis and the development of business continuity plans has been an important part of all risk engineering visits in 2013.
The standard of risk management at virtually all production sites is either HPR (Highly Protected Risk) or HMP (Highly Managed Prevention) and is regularly audited by external specialists. In the year under review, 16 production sites (previous year: 15) out of a total of 48 (previous year: 48) underwent such audits. The HPR standard applied to 85% (previous year: 85%) of the Corporation’s insured assets at the end of the year under review, the HMP standard to 10% (previous year: 9%).
Property, plant and equipment
In 2013, GF invested CHF 130 million in pro-perty, plant, and equipment. GF Automotive accounted for the bulk of this amount CHF 58 million (45%); a third was invested in the expansion of the Chinese foun-dries in Suzhou and Kunshan. GF Piping Systems accounted for CHF 55 million, which was spent on modernizing buildings and production facilities. About 63% of the investments were made in Europe, 28% in Asia and 8% in America. Total in-vestments in 2014 will be considerably higher owing to an expenditure of EUR 55 million for a state-of-the-art production line in Singen (Germany), which will significantly increase efficiency and competitiveness at GF Automotive’s largest foundry.