Performance leap in the first semester

• 10 percent sales growth in Swiss francs, 24 percent in local currencies
• EBIT increased by 78 percent to CHF 130 million
  
• Net profit more than doubled to CHF 92 million
  
• ROIC lifted to 14.6 percent. All Corporate Groups contribute to value generation
  
• Favorable syndicated loan secured for CHF 250 million

Georg Fischer grew during the first half year 2011 clearly above the market. All three Corporate Groups capitalized on the ongoing worldwide economic recovery and contributed to the double digit sales growth. 

The sales of the Corporation went up 10 percent to CHF 1,861 million, whereas the underlying growth in local currencies jumped 24 percent. The operating result (EBIT) also sharply increased to CHF 130 million in the first half of 2011 from CHF 73 million in the same period of 2010. Accordingly, the return on sales (ROS) went up to 7 percent against 4.3 percent in the first semester of 2010. The increased volume and the lowered cost base as well as price adjustments compensated the negative currency translation and transaction effects to a large extent. 

The Corporation also achieved a ROIC (return on invested capital) of 14.6 percent, already close to its objective of 15 percent for 2012. Net profit jumped by 124 percent to CHF 92 million, and earnings per share was more than doubled at CHF 21.
 
Due to seasonal effects as well as the high pace of growth, free cash flow in the period under review was negative at CHF – 54 million. In the second half of the year, a substantially positive free cash flow is expected. 

The balance sheet remained very solid with a virtually unchanged equity ratio of 39 percent despite the strong appreciation of the Swiss franc. 

Headcount rose by about 800 to 13,220 persons, on account of the expansion in Asia.
 
In the middle of the year, Georg Fischer concluded a new syndicated loan in the amount of CHF 250 million with a term of five years. This loan replaces the existing facility and allows for a better maturity profile as well as a higher strategic flexibility. 


GF Piping Systems grew its top line 4 percent to CHF 607 million (17 % in local currencies). The main growth came from a strong demand for industrial applications worldwide. 

In Europe, utility applications and building technology showed a more mixed pattern, with substantially higher growth in Northern Europe (including Germany), whereas sales in Southern Europe stagnated anew. 

Profitability went up significantly to CHF 80 million (first half 2010: CHF 65 million) for an ROS of 13.2 percent against 11.1 percent in the first six months of 2010.
 
GF Piping Systems has extensive manufacturing facilities in Asia and America, and its exposure to the US dollar is essentially hedged. On the other hand, a good part of its products manufactured in Switzerland are exported into the euro zone, thus generating significant transaction effects. 

The new plant inaugurated in August 2010 in Beijing for the production of floor-heating systems is already running at full capacity. GF Piping Systems will further boost its presence in China by opening its eleventh production facility, this one near Shanghai, during the second half of the year. 

GF Automotive lifted its top line to CHF 865 million in the first half for growth of 11 percent (26 % in local currencies). The truck sector has further recovered from the doldrums of 2009 and deliveries to truck manufacturers increased significantly during the first six months, thus improving the load of our cast-iron foundries. The growth in sales to car manufacturers in Europe was much more moderate after the significant jump of 2010. 

Profitability at GF Automotive has been doubled compared to the first half of 2010, from CHF 20 million to CHF 44 million. Since all the Corporate Group’s plants are located either in the euro zone or in China, it is not much exposed to the Swiss franc appreciation. 

Raw material price increases (aluminum, scrap iron) were, however, significant compared to the first half of 2010. Most other input costs also increased significantly (coke, rare earths, electricity). Most increases have been passed on to customers. This added about 8 percent to the top line without improving on the operational result, thus reducing ROS somewhat. 

Of all three Corporate Groups, GF AgieCharmilles saw the sharpest jump in orders and in sales, each showing an increase of 19 percent. In local currencies, the 35 percent increase for both was even more spectacular. Sales in the first half came to CHF 389 million. 

Order intake grew in all regions worldwide, with Asia and America in particular reporting a strong surge. Demand in Europe also bounced back strongly as the investment climate turned more favorable in most countries. The difference between order intake and sales stems from two factors: the high increase in order intake during the second quarter and supply disruptions, especially of key components from Japan after the earthquake of March 2011. 

Profitability improved from a loss of CHF 7 million in the first half year of 2010 to an EBIT of CHF 12 million in the same period of 2011. The currency impacts were significant especially on the US dollar, as the main production currently takes place in Switzerland. 

The new milling machine plant of Changzhou (China) successfully started operation in February 2011, and production is being quickly ramped up. In addition, part of the production for the world of EDM standard machines is being shifted from Switzerland to the Beijing plant, a move that will step by step reduce the overall currency exposure of the Corporate Group.

Despite macro-economic and currency headwinds, demand in all three Corporate Groups of Georg Fischer remains robust across its main markets. The order books are higher than six months ago, leading to a good plant load. 

The continuing appreciation of the Swiss franc, however, has a negative impact on growth as well as on margins as evidenced in the first half. Every effort is being made to offset its transaction effects: short-term with price adjustments as well as the increase of procurements denominated in euros and US dollars, mid-term with the further expansion of production in the main markets in order to come closer to a natural hedge. 

The lack of visibility in the currency markets makes a proper guidance difficult at this point in time. Should exchange rates stabilize, the Corporation expects a result in the second half of 2011 in the same range as in the first half. 

The added stability afforded by its international reach and by 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. Customer 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 complete version of the Mid-Year Report 2011 and the presentation for the telephone conference can be downloaded from 7:00 a.m. on 18 July 2011 from our website www.georgfischer.com.