Ladies and gentlemen, welcome to the Georg Fischer Mid-Year Results 2023 conference call and live webcast. I am Moira, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing Star and One on your telephone. For operator assistance, please press Star and Zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Andreas Müller, CEO. Please go ahead, sir.
Welcome. Thank you for joining our mid-year results conference call. Present on our side are CFO, Mads Jørgensen, Head of Investor Relations, Daniel Bösiger, Head of Corporate Communications, Beat Römer, and myself, Andreas Müller. Let's turn to slide number 2. GF was able to report a good performance in the first half of the year, despite challenging times. The group recorded robust organic sales growth of 7.5%. As a result of strong currency headwinds, with an impact of CHF 123 million, and the divestment of a light metal casting business in the U.S. in the first half of 2022, sales in Swiss francs were flat year-on-year at CHF 1.961 billion. GF increased its EBIT margin by 30 basis points to 9.4%.
It should be mentioned that strong negative currency effects of CHF 27 million weigh on the EBIT as well. The EBIT margin landed again within the target range of Strategy 2025. The current demanding political and economic environment, with high inflation and interest rates, impact several of our end markets. Construction industry worldwide and gas utilities in Europe are facing headwinds. Equipment demand in the ICT industry is sluggish and disappointing due to subdued customer demand. On a positive note, GF reduced its CO₂ emission Scope 1 and 2 by 15% and increased its sales of products and solutions with sustainability benefits by 3 percentage points to reach a total of 63% compared with H1 2022. Our Strategy 2025, with its focus on sustainability-oriented solutions for our customers, is well on track.
GF Piping Systems continues to expand its range of water treatment solutions, in particular, with new water sensors and automation solutions. GF Casting Solutions is focusing on lightweight components for e-mobility, and GF Machining Solutions precision machine tools are contributing to cleaner production processes with a new series of laser texturing machines. Our recommended public tender offer for Uponor, which we announced in June, was well received. Customers and employees of both companies support the plans to combine GF and Uponor, as do our investors. Slide 3. Let's take a look at the sales development in the first half of the year. Sales came in at CHF 1.961 billion, with an organic growth of 7.5%. GF Piping Systems increased sales organically by 4.2%.
In Swiss francs, the division faced strong headwinds from exchange rates and remained, therefore, slightly below the sales figure of the previous year. GF Casting Solutions organic growth of 20% was driven by higher volumes compared with the previous year. New projects were ramped up over the course of the past few months and contributed positively to the strong growth. Let me also remind you that the first half of 2022 was marked by plant closures in Europe as a result of the war in Ukraine, as well as in Asia, due to lockdowns in China. Sales at GF Machining Solutions increased 3.7% organically. Slide 4. GF increased its profitability in the first half of 2023 compared with the same period of the previous year. The EBIT margin was 9.4%, within the strategic target range of 9 to 11.
GF Piping Systems focus on sustainable value-added solutions and strong industrial end markets enabled the division to partially offset the significant negative currency effects. The EBIT margin was 13.2%, compared with 14.4% in the same period of the previous year. GF Casting Solutions achieved an EBIT margin of 7.5%. The solid market position and the growing share of e-vehicle components, as well as the divestment of the stake in the GF Linamar joint venture in the U.S. in 2022, were among the reasons for this margin increase of more than 400 basis points. GF Machining Solutions increased its EBIT margin to 4.7%. Profitability was impacted by low ICT volumes, but this was partly mitigated by slowly increasing sales in the aerospace segment. Slide 5.
In addition to the positive development of our financial KPIs, we have reached other important milestones on the way to achieving our sustainability goals, 2025. GF Piping Systems and GF Casting Solutions each received an EcoVadis medal in gold, an upgrade from silver received in 2022. EcoVadis is the world's largest and one of the most trusted providers of corporate sustainability ratings. More than 100,000 rated companies are part of their rating universe. Products with social or environmental benefits now account for 63% of the group's total sales. Of note are our solutions, such as energy efficient and recyclable pre-insulated piping systems or products with superior durability.... such as water and gas pipeline solutions, but also the increased share of lightweight components for electric vehicles and the focus on highly energy efficient and clean machine tools continue to have a positive impact.
CO₂ equivalent emissions were reduced by a remarkable further 15% thanks to various measures, such as more efficient production processes and newly installed photovoltaic systems. Noteworthy is as well that 23% of our newly appointed managers were women. Here, too, we are well on track to achieve our 2025 targets. Let us now take a closer look at the three divisions on slide 6. GF Piping Systems grew organically by 4.2%. Sales totaled to CHF 1.065 billion. The division saw lower demand for its building technology products in Europe and China, as well as for gas utility applications in Europe. The industrial segment, with its highly fragmented but attractive applications, continued to grow and supported the division's pleasant performance.
With an EBIT margin of 13.2% and an EBIT of CHF 141 million, the division delivered a result within its strategic corridor, despite a significant negative currency impact of CHF 24 million. The picture on the right illustrates one of the division's sweet spots of growth markets and sustainable mega trends, an onshore aquaculture fish farm in Norway. GF supplies sensors, valves, automation, fittings, and pipes to this sustainable project. You may also recall that at our media conference in March, I presented the Intel EPIC Award received for the year 2022. In 2023, GF once again received this prestigious recognition for quality and solutions. This is the first time that GF has received this award for two years in a row, underlining its innovation and customer focus.
Another important step in the first semester, 2023, was the inauguration of our site in Yangzhou, an event that had been postponed due to the pandemic restrictions. In Yangzhou, GF Piping Systems now operates a state-of-the-art production facility for piping systems, a clean room for pre-assembly, and a training center for our customers. With this new setup, the division is ready to meet the growing demand for sustainable solutions in this important region. Let's now look at slide seven, which illustrates four important end market segments for the division. Sales of products and services for microelectronics and data center applications increased by 38% to approximately CHF 140 million. GF is delivering its solutions to individual construction sites distributed over several stages, so the project volume is likely to be spread over more than one year.
The artificially inflated order intake seen in 2022 and 2021, due to the experienced severe shortage of certain raw materials, is also behind us and was not recurring in H1 2023. Marine segment continued to grow and generated sales of more than CHF 30 million in the first half of 2023. In particular, our customers in this segment require for solutions that offer durability and weight reduction. GF recently launched a water reclamation system labeled SeaDrain White, that meets both of these important requirements. The gas utility segment developed regionally uneven and declined by 2% in the first half of 2023. The U.S. market remained strong, growing by 9%, while demand for gas applications in Europe remained low. The building technology business of GF Piping Systems was affected by a subdued European market, especially in Germany, but also in Turkey and China.
Of all the segment sales declined by 10% to approximately CHF 170 million. Slide 8, GF Casting Solutions. The global automotive industry started the year with a solid growth in all regions. Global car production was up by 10% in the first semester, 2023, compared with the previous year. GF Casting Solutions increased its sales by 20% organically in the same periods, despite lower metal prices. Operating profit increased significantly to CHF 35 million, previous year, CHF 14 million, resulting in an EBIT margin of 7.5%, more than doubling the 3.2% reported in 2022. Sales of components for electric vehicles increased by 31%. They already account for one-fifth of the division sales in the automotive market. The share of orders received for EVs increased to 86% of total lifetime orders for high-pressure die castings.
Gradual recovery of the aerospace sector also had a positive impact on the division sales to this segment, which increased by more than 30%. A clear highlight for the division was the EcoVadis gold medal for its sustainability performance. This award positions GF Casting Solutions in the top 4% of companies in the metal casting industry segment. The division is increasingly being recognized for its innovative strength and its ability to produce mega castings, a key differentiator in the production and assembly of cars. The plant in Shenyang, China, will be one of the first to produce these parts for volume orders. Let's move on to slide 9. One of the division's key competencies is the design and industrialization capability of complex large body and structure components. 50% of the lifetime order intake can be attributed to the strong R&D involvement at an early stage.
Total lifetime order intake was CHF 645 million. Of this, CHF 433 million was for a high-pressure die casting technical unit. Orders for electric vehicles continued their strong momentum and amounted to CHF 373 million, or 86% of the technical unit high-pressure die casting. GF customers include the top 5 Chinese manufacturer of electric vehicles, as well as the leading European OEMs. Our unique ability to design and produce mega castings on existing die casting machines is being clearly appreciated by our customers. Being able to use existing machines leads to an extension of their service life, and thus, to higher economic and ecological benefits. The picture on the top right shows a rear body cast for a sports utility vehicle. Let us now turn to GF Machining Solutions, slide 10.
The division benefited from the recovery in the aerospace industry and the continued strength of the medical technology segment. Booking orders worth of CHF 461 million, resulting in a book-to-bill ratio of 1.1. Sales amounted to CHF 426 million, an organic increase of 3.7%. Sales developed positively in Europe, while APAC experienced a decline of around 15%, mainly due to the subdued ICT segment. The ICT market is facing weaker demand after an overamplification during COVID-19. Moreover, recent innovations did not cope with consumer expectations. GF Machining Solutions' new generation of laser texturing machines represents a cutting-edge clean technology. Its recently launched milling machines with integrated grinding functions are perfectly suited to demanding production processes. One of these sustainability applications is the production of fuel cells.
Slide 11 shows the sales trend in selected end market segments of GF Machining Solutions. After three years of subdued sales in the aerospace segment, the division is now reporting solid growth of 22%. Nonetheless, sales of around CHF 56 million remain still well below pre-COVID levels. Medical market segment continued to grow by 34%, with sales of more than CHF 50 million. The three competence centers for machining medical devices in the US, Germany, and China are highly appreciated by our customers, and correspondingly continue to create new business opportunities for GF. The ICT segment, with its strong presence in Asia, had to contend with weak consumer demand and consequently a slowdown in the capital expenditure of our customers. GF Machining Solutions reported a decline of 31% in that segment. Sales totaled a tad below CHF 60 million.
With that, I will hand over to our CFO, Mads Jørgensen, for a detailed look at our financials.
Thank you, Andy. Ladies and gentlemen, from my side, a warm welcome. I will now present the consolidated financials of the first half of 2023. On slide 13, we present the order intake for the first semester. You will see that GF Piping Systems recorded an organic decline in order intake of 14%. The decline should be seen in the light of the abnormally high microelectronics order intake in 2022. Last year, the combination of high raw material prices increases and material shortages led to customers ordering 12 to 18 months ahead, compared to a normal ordering pattern of 3 to 6 months. The order intake in utility and building technology was clearly weaker. GF Casting Solutions recorded the strongest organic growth in order intake of all divisions, with 12.8%.
This was driven by volume growth in the global automotive segment, as well as a recovery in the aerospace and industrial gas turbine segment. Please also note that the order intake of CHF 488 million in 2022 still included the CHF 38 million order intake of the divested joint venture, GF Linamar. For GF Machining Solutions, the order intake grew organically by 1% in the first semester. Despite rising interest rates and uncertainty, the book-to-bill ratio in the first half came in at 1.1 times. Overall, the GF Corporation reached CHF 1,925 million in order intake, with an organic decline of -5.1%. As you can see on slide 14, in the last line of the table, the sales of GF Corporations grew organically by 7.5%.
You can also see from the absolute development that currency effects were substantially negative. In the first half of 2023, GF Piping Systems generated sales of CHF 1.065 billion, with an organic growth of 4.2%. The division continued to benefit from strong industrial markets, especially in Asia and Europe. The utility and building technology markets, on the other hand, were weaker. GF Casting Solutions generated sales of CHF 471 million. Adjusting for the divestment of the joint venture, GF Linamar, in the previous period, and for currencies, the organic growth was an impressive 20%. This was driven by the recovery of the global automotive markets, but also for the market of investment castings, finally started to recover and came in significantly above previous year. For GF Machining Solutions, the first half of 2023 developed positively.
Sales grew organically by 3.7% to CHF 426 million. The supply chain issues were no longer a major concern. Sales of advanced manufacturing technologies and milling technologies came in stronger, the latter, in particular, driven by the global recovery of the aerospace industry. As pricing remains an important growth contributor, we will again show the development in the first half. As you can see from the footnote on slide 14, GF Piping Systems was able to pass on the cost increases to the market to the tune of 6%-8%. For GF Casting Solutions, pricing was flattish, and for GF Machining Solutions, the price adjustments were in the range of 3%-5%. On slide 15, we show the various components of the sales development.
Starting on the left-hand side with the consolidated sales of the first half of previous year, of CHF 1,971 million. At the end of March 2022, the joint venture, GF Linamar, was divested, and the pro rata sales for January to March amounted to CHF 34 million. Moving to acquisitions with a CHF 2 million full year effect of the consolidation of the Italian service company, VAM Control, which was acquired in July 2022. Next, the accumulated effects across all foreign currencies amounted to -CHF 123 million. This is CHF 72 million worse than previous year. Finally, this leads to an organic growth of CHF 146 million, or 7.5%. We now move on to take a closer look on the regional sales. On slide 16, we show the sales per region.
GF grew organically in all regions of the world. Going to the very left-hand side, you can see the declining sales in Americas in absolute terms, which is mainly explained by the divestment of the joint venture, GF Linamar. Overall, the organic growth of 1.2% was actually driven by GF Casting Solutions, through their export from the Austrian Altenmarkt plant to the US, as well as a modest growth with GF Machining Solutions. The growth in Europe was mainly attributable to GF Casting Solutions and GF Machining Solutions. Moving to Asia, where organic growth was clearly driven by the industrial piping systems business and the e- recovery of the Chinese automotive sector from the COVID lockdowns last year. The sales figure in the rest of the world includes, among other markets, such as Turkey, Israel, and India.
Despite the further deterioration of the Turkish lira, sales for the region could be increased to CHF 100 million. Slide 17 shows, on the left-hand side, the EBIT in million Swiss francs, on the right-hand side, the corresponding EBIT margin in %. After a record-breaking first semester in 2022, GF Piping Systems reported an EBIT of CHF 141 million, CHF 17 million below the previous period. The division was adversely impacted by strong foreign currency losses, as well as lower volumes in the utility and building technology segment. As a result, the EBIT margin reduced from 14.4% to 13.2%. Within the strategic corridor, GF Casting Solutions achieved an EBIT of CHF 35 million, CHF 21 million above the previous period. The divestment of the loss-making joint venture, GF Linamar, provided a relief to the EBIT of CHF 9 million.
Stronger sales, as well as operational improvements at previously loss-making plants, further supported the profitability of the division, and the EBIT margin subsequently came in at 7.5%. The new plant in Shenyang, China, was successfully started, but still ramping up production volume according to plan. The EBIT of GF Machining Solutions increased from CHF 17 million to CHF 20 million. The sale of higher-margin services and advanced manufacturing machines, as well as operational improvements, contributed to the increased operating profit. The EBIT margin reached 4.7%, up from 4% in the first semester of 2022. At group level, the EBIT increased from CHF 179 million to CHF 184 million, and the EBIT margin improved by 30 basis points, from 9.1% to 9.4%, clearly within the strategic corridor.
Slide 18 shows details of the currency effects compared to the previous period. The negative effects increased further. Overall, the currency effects on sales amounted to minus CHF 123 million, compared to CHF 51 million in 2022. On a divisional level, GF Piping Systems was mostly impacted with a negative effect on sales of CHF 75 million and CHF 24 million on the EBIT. As it can be seen on the right-hand side, all major currencies heavily dragged on sales. The biggest deteriorations compared to the first half of 2022, came from the Chinese yuan and the euro. The development of the Turkish lira was nevertheless relatively better, with only CHF 15 million negative sales effect, compared to negative CHF 45 million in the first six months of 2022. Other currency effects mainly include changes in Japanese yen, Hong Kong dollar, Swedish krona, and the British pound.
On the EBIT, the total foreign currency effect amounted to minus CHF 27 million. Slide 19 brings us to the income statement of the GF Corporation. As mentioned earlier, sales declined by CHF 10 million to CHF 1,961 million. Personnel expenses increased by CHF 13 million, or 5.7%. The average number of employees increased by around 4%, and so did the salary levels in local currencies, and hence, their personnel cost ratio increased from 26.6% to 28.3%. Although the EBITDA decreased by CHF 1 million to CHF 239 million, the EBITDA margin remained stable at 12.2%. Depreciation and amortization decreased by CHF 6 million. Of this decrease, CHF 4 million relate to the divestment of the joint venture, GF Linamar.
Income taxes increased from CHF 34 million to CHF 36 million, and the effective tax rate increased from around 21% to around 22%. This is mainly caused by used up tax loss carryforwards, as well as withholding tax on higher dividends paid from our Chinese companies. Finally, net profits attributable to GF shareholders remained with CHF 123 million, close to previous year, and the corresponding earnings per share was 1 Swiss franc and 50 Rappen, compared to 1 Swiss franc and 53 Rappen in the previous period. Turning to slide 20, which shows the balance sheet as of June 30, 2023, compared to December 31, 2022. The liquidity situation at GF remains solid.
The temporary reduction in cash and cash equivalents to CHF 617 million reflects the all-time high dividend payment in April, the seasonal investments in net working capital, the higher capital expenditures, and to a large degree, the acquisition of shares in Uponor, the latter impacted cash by CHF 57 million negatively. The trade accounts receivable increased seasonally from CHF 660 million at year-end to CHF 707 million. Days Sales Outstanding went up from 61 to 64 days compared to year-end. The level of inventories grew from CHF 833 million to CHF 867 million, and Days Inventory Outstanding correspondingly climbed seasonally from 130 days to 135 days. On Slide 21, we continue with the liabilities and equity. Trade accounts payable decreased seasonally from CHF 563 million to CHF 503 million.
Year-end is typically characterized by high accounts payable. The Days Payable Outstanding increased from 62 to 71, which is a typical seasonal effect from GF Piping Systems. Equity decreased from CHF 1,656 million to CHF 1,612 million. This decrease is mainly due to the dividend payments of CHF 109 million, and negative currency translation differences of CHF 58 million. Overall, the equity ratio remains stable at 45%. Slide 22 shows the development in free cash flow. EBITDA was at the level of previous period, the increase in net working capital was with -CHF 165 million, substantially below previous year. Investments in property, plant, and equipment amounted to CHF 90 million, an increase of CHF 22 million compared to the first semester of 2022.
Furthermore, you can see that we acquired Uponor shares in the amount of CHF 57 million. Please also note that the CHF 61 million cash-in from the sale of the 50% stake in the joint venture, GF Linamar, in the 2022 figures. Hence, the free cash flow before acquisitions and divestments improved from -CHF 98 million in 2022 to -CHF 66 million in this reporting period. Finally, slide 23 summarizes the key figures. Net debt increased from CHF 56 million to CHF 108 million. The net debt, EBITDA multiple increased accordingly from 0.12x to 0.21x. The return on invested capital increased year-over-year by 1.9 percentage points to 21.7%, at the upper end of the strategic corridor of 20%-22%.
GF Casting Solutions also ended up within their Strategy 2025 corridor of 18%-22%. Hence, in the first semester of 2023, all divisions clearly earned over and above their allocated cost of capital. The number of employees at the end of the period increased from 14,957 to 15,464. Let me summarize the financial performance of the first half of 2023. This first semester, we continued the implementation of our growth strategy and achieved important milestones in terms of profitability and return on invested capital. With a high equity ratio, the balance sheet remained more than solid. Thank you very much for your attention, and I now yield the floor to Andy for the outlook.
Thank you very much, Mads. Let me now move on to slide 25. Allow me to give you a brief update on GF's voluntary recommended cash tender offer to acquire the Finnish company, Uponor, which, if successful, will pave the way for GF to become a global leader in the water and flow solutions business, and further enhances its resilience and growth prospects. This is a transformational step for GF, which, if successfully completed, will accelerate the implementation of the GF Piping Systems Strategy 2025. We continue to expect the transaction to close in the fourth quarter of 2023. The feedback we received from customers, employees, and the capital markets on this public tender offer has been very supportive and favorable.
As of yesterday, we were able to acquire more than 5% of the outstanding shares in the public market, and together with the irrevocable undertakings already signed and committed, the acceptance level is now in the range of 43%. In addition, the U.S. antitrust authorities did not object the acquisition just yesterday on July 19th. Let me move on now to slide 26. The current volatile environment is likely to continue in the short term, but the situation varies among the different market segments. GF Piping Systems faces a subdued construction industry worldwide, and gas utilities in Europe continue to experience headwinds. At the same time, the industrial segments are experiencing a sustained favorable momentum worldwide. GF Casting Solutions' strong position in the electric vehicle and high-end car segments should continue to support its business also during the second half of the year.
Demand for investment castings for the aerospace industry is also expected to pick up further. GF Machining Solutions remains confronted with the subdued ICT market, especially in China, but order intake in the MedTech and aerospace sector is solid. Overall, GF is set to benefit from the strong position of its division in resilient market segments. In particular, our customer sustainability needs continue to offer excellent long-term business opportunities for the group. Barring unforeseen circumstances, GF expects to achieve in 2023, both an organic sales growth in line with the Strategy 2025 target and an operating profitability within the Strategy 2025 corridor. With that, I would like to conclude our presentation, and we are now ready to take your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handsets and eventually turn off the volume from the webcast. Anyone who has a question may press star and one at this time. The first question is from Walter Bamert from Zürcher Kantonalbank. Please go ahead.
Good morning, everybody. It's impressive to see the results of your repositioning of Casting Solutions division. I have 4 questions related to that successful division. The first is it correct what you said about the electric cars, that they account for about 15% of sales of the division?
Okay, we take one by one. Thank you, Mr. Bamert, for this question. It is correct that our e-vehicle sales are now in the amount of the total sales of the division in the range of 15%, and in the segment, which is for light vehicle cars, it is a tad above 20%.
Okay. Were there any positive, one-offs included in the profitability this time? I think about compensations.
No. Also, we had no particular one-offs in the first half of the year, nor in Casting Solutions, nor in the other divisions.
Okay. Is there a negative, or can you give a number for the Shenyang ramp? What should we expect there? What did you have in the first half?
The first half of the year was affected by ramp-up costs of this state-of-the-art facility by approximately CHF 3 million, and there is a forecast in the mid of a single-digit million cost associated with the ramp-up of Shenyang for a year.
Okay. Then the last question is: when you get a lifetime order, do you include the full lifetime volume in the order intake?
This is a very good question, and I think it really deserves a little bit clarification. When we talk about lifetime order intake, it is the nominated volume over normally a period of 5 years being awarded by the customer to us. The lifetime order volume is not reflected in the so-called orders intake, what you see in our financial reports. The order intake displayed here is more to be considered as a call-off for the upcoming 3 months only. This is only a 3-month period, which is considered as an order intake in our statements, as disclosed in our report.
I hope this was clear.
Okay. Thank you very much.
Thank you, Mr. Bamert.
The next question is from Martin Flückiger, from Kepler Cheuvreux. Please go ahead.
Morning, gentlemen. Martin Flückiger from Kepler Cheuvreux. I've just got one left, Walter actually asked a number of my questions already. Selling price developments in H1 were positive for price for piping and machining, flat for casting solutions. Could you talk a little bit about what kind of raw material price developments you saw in H1? What kind of trends do you expect here for H2? You know, what we should assume for selling price adjustments in the second half? That's my only question so far. Thanks.
Thank you very much, Mr. Flückiger. I will hand over this question to our CFO, Mads.
Thank you, Mr. Flückiger. The price development relating to the raw material cost for casting solutions, we have seen a reduction in the aluminum price, on average, around 6%, much more on the magnesium side. As you know, we have a delay of around 3 months before we can charge that on, or we have to move that on to our customers. In the first half, you will probably not see so much of an impact. It will probably come more in the second half. We do not expect the raw material costs necessarily to fall further than they have. Right now, it seems they have leveled out at the area where they are now.
To quantify it from the, from, for the second, part is too early for us to do right now.
In other raw material areas, such as resins for plastics, we see a stable development at this point of time.
Thanks.
The next question is from Christian Obst, from Baader Bank. Please go ahead.
Yes, good morning. I have a question concerning Machining Solutions. We have seen some kind of an ongoing upward trend, or in the margin from the first half 2020 onwards. Do you also expect that to go further on into the second half 2024? Is the headwind, especially from China, you mentioned the ICT headwind there, that we cannot reach the same margin that we have seen in the second half of 2022? This is the first question.
Well, thank you very much for this question, and I think it's a very good one. Let me also give a little bit a background to the ICT, Information Communication Technology market. This is a very dynamic market, which obviously lives a lot from innovations, consumer-inspiring innovations. Normally, it's a short-cycled business, so the downtimes of these cycles are normally in the range of 9 to 15 months only. This is also due to the durability of this kind of products in the market. We assume that the ICT market should recover in the second half of the year 2024.
What we, on a positive note, as said in our outlook guidance, is that the aerospace segment is picking up and winning momentum, so order intake has been strong in this segment and will allow over the next, let me say, the next month or actually even year, to supply these orders. This obviously will support-
Thank you.
... the margin development going forward.
Is there meaningful differentiation in the margin you receive from the different customers when it comes to ICT or aerospace or what else?
It's not so much relevance, lastly, you know, whether the customer. It's more about the technology, which drives the margin. There are various technologies which are obviously very beneficial when it comes to automated, complex, ultra-precise machine tools, whereas when entrance-level machine tools, where obviously competition is also slightly higher than on the ultimate high-end or niche product. It's more a product combination, whether it is coming along with service packages, whether it comes along with automation, this is much more the driver of the margin.
I have a question, one or two questions concerning Piping Systems. You see these, or you mentioned also these ongoing recession trends when it comes to the classical construction markets there and gas supply. Do you see this at some kind of a beginning, or is that more that we have seen the peak and then you expect some kind of an improving going forward? This is the first question for Piping.
I think the construction market obviously behave completely different around the world. As we may have seen, you know, there's a builder confidence rise in the US, which means that markets seems to develop flattish. We obviously have seen, you know, Germany being hit very hard in the EU, we don't think, you know, that this is supposed to recover quickly, it needs to recover at one point of time. You may have also seen that there is a shortage of approximately 700,000 housing or apartments in Germany, and account build rate of only 150,000, 170,000 for the year 2023. Short term, it's still being hit strongly, however, long term, we're gonna see this market very well intact.
Also for us, what we have observed in the first half of the year, 2023, was a strong and solid Swiss market, with a good performance and a, and a more or less development on previous years' level. Is that hiked or not hiked? I think, you know, in China, we will say, you know, we are bottoming out this effect, you know, and we're supposed to see some recoveries, you know, going forward, most likely starting in the year 2024, you know, but this is actually something, you know, which is obviously out of our hands.
Of course. Directly also going to China, you stated that their production is on full, in a full ramp up, also in the new plant in Yangzhou. Do you expect any meaningful impact from that?
The Yangzhou plant is positioning GF very well in this very important region. I think it is a plant, you know, which is serving predominantly, you know, the industrial end market segment. As said, you know, we have a clean room also there, which is geared to supply into, e.g., photovoltaic production, but also into the microelectronics market. We have a prefabrication, you know, to assemble skids for our clients. We have customer training centers, but we are also producing various parts of the industrial segment, not only fittings, but also going to the next level in terms of complex products being produced there. We are set to, let me say, increase the competitive position of GF Piping Systems in this very important market.
The actual question was, will there come some kind of a meaningful impact also on the top line or on the bottom line from, coming from that plant now being ramped up or not, and not just producing any kind of ramp-up costs anymore?
No, I think this plant is already in operation, and it's not creating any losses in terms of ramping up the production setup, because I think, you know, it's a much quicker process to ramp up a piping systems facility than a casting facility. More or less, as you may also know, we had already a production base. We partially has been relocating this production-.
Yeah
... during the last couple months. Now this site is already in full operations and actually even contributing profit-wise to the results of Piping Systems. Top line-wise, with this facility, we will be able to double our industrial segment sales volumes produced in China for China.
Okay, thank you. The last one is on pricing. There was some kind of a windfall profit you gained by increasing prices in the entire piping system, let's put it that way. Will there be some kind of a headwind when you cannot adapt further, and prices are staying on a high level?
Maybe I can answer that question. I think we also stated before, the pricing in the piping systems industry, there is always an element of stickiness. It's obvious that for the utility pipe and the more commodity-type pipe of business, that constitutes roughly about CHF 300 million of piping systems sales today, they are subject to a daily pricing and fluctuation in the price level. The majority of the business is a more sticky one, so we do not expect a massive decline in prices in the next coming period.
Okay. Thank you very much.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Bernd Pomrehn from Vontobel. Please go ahead.
Good morning, gentlemen. Two questions, if I may. Firstly, you mentioned the call-off period of 3 months for the reported order intake. Is this true only for casting solutions, or is this true for the entire group? My second question. OpEx increased by 8% in CHF in absolute terms, despite some benefit from the weakening of most currencies. What drove this increase? Were there already some costs related to the Uponor acquisition, for example? Thank you.
Thank you very much for your questions. In regards to the call-offs, the 3-month limitation is only applied to our Casting Solutions divisions, whereas we cut order intake volumes for reporting purposes after 12 months for the other divisions or for Machining Solutions.
To your second question, concerning the operating expenses, it's actually operational increases. We had increasing utility costs, approximately CHF 5 million. Also, coming out of the COVID lockdowns of previous year, we tend to forget that there was actually most of the year last year. Our travel and entertainment expenses on the customer side has also increased, as well as our selling costs. We also have done certain investments into upgrading our IT infrastructure, as well as our cybersecurity activities. That's basically driving the operational expenses.
That's very helpful. Thank you.
The next question is from Tobias Fahrenholz from Stifel. Please go ahead.
Yes. Hi, gentlemen. Two questions from my side. First, on castings, is it fair to assume that the e-mobility profitability is still much higher than the old combustion, business, seeing there are more and more engineering activities and all that stuff, or has this changed? Maybe you could give some flavor here. Are we speaking about the low double digit, level, or is there no difference, in your view?
Thank you very much, Mr. Fahrenholz, for these questions. Yeah, I think it's a fair statement, and obviously, outgoing orders, particularly related to purely combustion engine components, which is anyway only nowadays now becoming more and more a minor part of the businesses of GF Casting Solutions. Complex body and structure parts also, which have involved R&D capabilities of our divisions, are likely to tend to have better and more profitability.
Good. Another follow-up on piping. I mean, seeing the orders down 14% there, you were kind of highlighting extraordinary high basis effect. What do you have in mind if we exclude all these special effects? Would the adjusted growth level still be negative, or where do we stand here? How much cyclicity do we see here on an underlying basis, in your view?
It would be, probably much more closer to the sales figure. The order intake figure for Piping Systems is, of the three divisions we have, probably of the least relevant, because about 80% of the business is ordered and delivered within 24-48 hours. On a monthly basis, you would typically see these order intake and sales being very close to each other. If we take out these microelectronics effect, we will probably come closer to the sales figure.
Okay, thank you.
For any further questions, please press star and One on your telephone. The next question is from Joern Iffert from UBS. Please go ahead. Mr. Iffert, your line is open.
Yes. Hi, can you hear me?
Vaguely, Mr. Iffert.
Hello? Can you hear me?
Yes, we can hear you, Mr. Iffert.
Sorry, thanks for taking my question. The first question would be coming back on Piping and the order intake. With the semi market being down in 2023, and I think the projects are still finished, but the order intake is down, would you expect that, in Piping, semiconductor, microelectronic markets is really a quite significant headwind in 2024 for Piping? The volumes could be down for the whole division. Your thoughts here, this will be the first question. The second question, could you comment a bit on the seasonality in the first half, about the second quarter with the first quarter, would be appreciated. Thanks a lot.
Yeah. Mr. Iffert, here on our side, your second question was barely audible. Could you repeat that, please?
Yes, I am sorry for this. I was speaking or asking about the seasonality. Was Q2 similar to Q1, or was Q2 getting weaker versus Q1, and how you think about the second half? Do you expect the second half to be back-end loaded, or relatively gradual in terms of the organic sales?
All right. I think if I'm not mistaken, hello, Mr. Iffert, your second question is about the seasonality in terms of profitability in Q2, huh? Let me answer your first question about the semiconductor market. As said and outlaid in our presentation, GF Piping Systems is benefiting more or less, you know, from the very first day, supplying into one of the semiconductor projects with some stormwater piping systems going to the water treatment facility, coming at the later stage, then, to the clean room applications. Most likely, you know, the last supply happens, you know, when the lithographic tool is being hooked up to the production processes.
A spend for supplying into these big projects can easily last 2 years or, like the very big costs, the very big foundries being built in Phoenix and Arizona, for example, this is 2 to 2.5 years projects. As Mads already outlaid, the normalization of the order intake obviously at this point of time doesn't worry us too much, considering that there is $180 billion only in the US projects under constructions or to be started in the upcoming month, also partially benefiting obviously from the CHIPS Act. For us, this is a little bit more a balanced business, since we don't have, let me say, a week or 2 weeks where we're gonna supply our products into the factories.
It is a over the time process. We also have spoken, I think, at our media conference, year ending 2022, about the orders being at that high levels, that not all of them actually could have been served or actually taken on. In terms of profitability, I think what we have observed in our seasonality was a normal seasonality. Q2 normally represents a strong quarter for the GF Corporation, therefore, we haven't had an very much of an imbalance development over this year.
Thank you!
Welcome.
The next question is from Daniel Koenig, from Mirabaud Securities. Please go ahead.
Yes, good morning. I was studying the Uponor result today, and I noticed that their gross margin improvement is 220 basis points. It's a little bit more than your gross profit margin improvement. I was just wondering, on an indication base, is that also true for your piping business, that the gross margin improvement is better at piping than at casting and machining, or is that more or less even? Thanks.
Thank you very much for this question. I think first of all, it's a very positive information about the development of the Uponor's profitability, but I believe, the answer are about GF to my CFO.
I mean, at the divisional level, the clearly gross margin improvement that we've seen has mainly come from Casting Solutions this year, less to a degree for Machining Solutions. Piping, there we have the situation that some of the utility and heating markets we've had slightly lower volume during the course of the year, and this, of course, has depressed the gross margin slightly on the Piping side.
Because that is interesting because the Uponor sales were down 13.5% in the half year. It seems like they have a little bit of different raw material mix, because their volume must be down also quite a bit.
I think, by assessing the results of the Uponor Group, it is also important to keep in mind that they have done a structural adjustment in their infrastructure business. For the first time, their infrastructure business has now reached double-digit profitabilities. As you may have read in their news flow, they have divested an energy piping business, and they have also closed down one of their facilities in Denmark. Therefore, they have obviously improved, you know, but with less sales, their profitability or profit in relation. It's a combination, and as you may also recall, when you look into the Uponor media releases, they have started a transformational process, you know, announced in the annual results. Most likely, this is also one of the reasons why they account for a relative stronger profitability.
Therefore, I think the guys in Finland, they have a call towards the end of this day, so, or towards middle of this day, because we are here to comment on the GF results. Thank you.
Okay, thanks a lot.
There are no more questions at this time.
With that, we would like to express our sincere thanks for the interest in our company, and we wish you a good day. Thank you.
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