Georg Fischer responds to changed economic conditions
The international financial crisis and the worldwide economic slowdown have had a major impact on the automotive industry and on the machine tool sector. Since October 2008, Georg Fischer has been confronted with a slump in demand in these markets. GF Automotive and GF AgieCharmilles are therefore drawing up profitability and efficiency programmes in order to cushion the blow from the severe economic downturn. At GF Piping Systems, business to date has remained firm and is developing in accordance with expectations. As things stand now, Georg Fischer expects annual sales in 2008 to be on about the same level as the previous year. Owing to the change in the economic outlook, Georg Fischer will take an impairment of goodwill and plant assets at GF Automotive, which will be charged to the 2008 income statement and will reduce the EBIT margin for 2008 to a level of around 3-4%.
After a sales growth of 6% and an EBIT margin of 6.6% for the first six months of 2008, Georg Fischer expected in July 2008 to be able to repeat this result in the second half of the year, providing external factors remained stable. As expected, the Corporation further increased its sales compared with the previous year during the third quarter of 2008. Since October, however, conditions have changed dramatically – the economic downturn has hit the automotive sector and the machine-tool industry particularly hard. In addition, the euro has weakened significantly against the Swiss franc since mid-September 2008.
Until the end of September 2008, GF Automotive enjoyed buoyant demand in both the passenger and commercial vehicle markets. Production plants were operating above capacity. Starting in October, various carmakers have drastically scaled back production, and orders for cast parts have been revised or postponed. As a result, within a few weeks, most GF Automotive production plants have gone directly from a situation of overload to one of under-utilisation. Georg Fischer reacted swiftly and has adjusted production volume to the change in conditions. Additional measures to boost efficiency are in place, and Georg Fischer is carefully examining each of the Corporate Group's sites in order to align production capacity with demand. It is not possible today to predict how long the slump in demand in the automotive industry will last.
GF Piping Systems continues to report strong demand, and its business performance is on target. The negative impact of the weak euro since October 2008 is alleviated by the Group's strong position in Asia and the emerging markets. The companies acquired in 2008 – Central Plastics (USA), JRG Gunzenhauser (Switzerland) and Alfa Plastics (Canada) – are also performing according to plan and are supporting growth at GF Piping Systems. The sustainable development of GF Piping Systems into a more significant sales and earnings pillar within the Corporation remains a clear strategic goal for Georg Fischer.
Amidst unsettled global economic conditions, GF AgieCharmilles is experiencing a marked decline in investment activity among its customers. The Corporate Group is currently drawing up a worldwide programme to increase efficiency and in future will focus each of its production sites in Switzerland on one specific technology (milling, wire EDM or die-sinking EDM). The aim is to avoid product redundancy and streamline the organisation.
Given the gratifying sales growth in the first nine months of this year, Georg Fischer expects consolidated sales for the full year to be at more or less the same level as the previous year. Owing to the uncertain outlook, which makes a revaluation necessary, Georg Fischer is taking an impairment of goodwill and plant assets at GF Automotive. Together with other minor extraordinary expenses, this will result in a one-off charge to EBIT in the range of CHF 90 million. This is offset to some extent by extraordinary income, particularly from the sale of the Verkehrstechnik company, amounting to CHF 40 million. The special charges to the income statement therefore total about CHF 50 million. From today’s perspective, Georg Fischer anticipates an EBIT margin of around 3-4% for 2008 including special charges. After taking the Corporation's net debt into account, Georg Fischer still has a very solid balance sheet with a high equity ratio of over 40%.
Georg Fischer is bound to feel the effects of a severe recession such as is being generally forecast. Since the potential impact of the global financial crisis on the real economy cannot yet be fully assessed, it is not possible today to make any forecasts for the year 2009.
The corporate strategy and long-term objectives remain unchanged. The Corporation will further expand its presence in Asia, the Americas and the Middle East and will build new production sites in important markets. It will continue to press ahead with investments in innovation and plant efficiency.
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