Ladies and gentlemen, welcome to the Georg Fischer Mid Year Results 2020 Conference Call and Live Webcast. I'm Andre, the Chorus Call operator. I would like to remind you that all participants The conference must now be recorded for publication or broadcast. If you did not receive the link of the presentation, please go to the Gerak Fisher website to download the presentation. At this time, it's my pleasure to hand over to Andreas Mulev, CEO and Marc Jorgensen, CFO.
Please go ahead, gentlemen.
Welcome, and thank you for joining our House Year conference call. Present on our side are CFO, Max Jorgensen Head of Investor Relations, Daniel Birsiger Head of Corporate Communications, Berhard Wohmer and myself, Andreas Muller, CEO. Let's turn to Slide 2. GF achieved a solid performance amidst the turbulence of the COVID-nineteen pandemic. Governmental lockdowns affected our end markets across the world.
The global automotive market as well as the machine tool industry were hit the hardest. However, GF was able to partially mitigate these effects through its well diversified group portfolio and well balanced global footprint. We were therefore able to limit the organic decline to 14 percent in the first half of twenty twenty. Sales came in at CHF 1,500,000,000, which were clearly negatively affected by the strong Swiss franc by more than €80,000,000 at the divestment of the Austrian iron foundry last year in October. GF was able to leverage its agility program started in 2019 to reduce costs strictly in the first half of the year.
Our CFO, Mats Jorgensen, will come back to this later. The operating result before one off items was affected by the reduction in sales and declined to CHF64 1,000,000. This corresponds to a return on sales before one off items of 4.2% in contrast to 8% at the same time last year. Chiyo was able to maintain a solid liquidity level throughout the year and thereby ensure a smooth operation. More importantly, our weather, we were able to continue and even accelerate our strategic projects and investments in the first half of the year.
We made good progress with our new process automation and sensor facility at GF Piping Systems in Los Angeles, U. S. As well with our new COVID production at GF Piping Systems in Jafal. In addition, we have continued to invest in China with 2 new plants, one for GF Piping Systems and another one for GF Casting Solutions. In addition, GF Machining Solutions started its new facility in Changzhou earlier this year.
GS continued its focus on more resilient market segments such as microelectronics, infrastructure medtech and sustainable mobility. The last picture on the slide shows a recently launched virtual welding training program of GS Piping Systems, which allows our customers to remotely train their employees. Please allow me to briefly reflect on the COVID-nineteen effect so far, Slide 3. Kyiv's strong well balanced global footprint as well as the shift to higher value businesses as a consequence of the last two strategic cycles has helped us to quickly mitigate the effects of this crisis. Our pandemic crisis team was able to leverage and build on the experiences gained from our colleagues in China and quickly adopt the plans for other regions and countries.
GF is represented in all regions with a strong setup, including comprehensive management functions. Since we produce in the region, for the region and with our local sales organizations, we have been able to maintain a close proximity to our customers, which has also allowed us to adapt to the local situation immediately during the turbulent times. In many countries, our plants qualified as essential industries because we were providing products for the medical, gas, water and other infrastructure sectors. Obviously, a major advantage to partially sustain business. I would like to conclude this slide with a heartfelt thank you to the everyday heroes in our facilities who cope with the crisis exceptionally well.
The picture on the left shows our Geop Piping Systems employees in Scharfhagen. The safety of our employees wars and continues to be of utmost importance. CHEAP has continued to focus on innovations and the implementation of its Strategy 2020, Slide 4. Despite this, we will not be able to achieve our financial targets this year due to the effects of COVID-nineteen. However, we will be able to implement our Strategy 2020 initiatives on time.
The strong focus on digital applications such as connected products and intelligent solutions continued, which can be seen with GF Piping Systems' new virtual exhibition platform. We also launched new water management solutions with the next generation of our iClean system. Our Machining Solutions division launched a new bilaser texturing machine and Geopcasting Solutions co developed the modular battery housing for sustainable mobility solutions. As previously mentioned, we will be breaking ground and investing CHF 30,000,000 for new GF Piping Systems production, training and R and D facility in Yangzhou as well as CHF50 1,000,000 for new GF casting solution plant in Shenyang, North China. We are proud to report that GF has established a new sustainability committee at the board level, underpinning the relevance of the ESG topics at GF.
For more information, please refer to the recently published 2019 sustainability report, which you can find in our Down Road Center. Slide 5 shows the sales development of the first half year of twenty twenty. Sales declined to CHF1.5 billion due to the global impact of COVID-nineteen, which corresponds to an organic decline of 14%. GF Piping Systems has remained strong during these times and delivered a resilient performance with an organic decline of only 3%. The well known deep dive of the global car industry has left its mark at GF Casting Solutions with an organic decline of 28%.
GF Machining Solutions is confronted with historically low PMIs and restrained sentiment with regard to capital goods spending. Of note here is that many suppliers in the aerospace and car industry remain extremely cautious and therefore delaying investments in new production equipment. On the positive side, signs of recovery can be seen in the ICT and new technology industries. Consequently, GF Machining Solutions came in with an organic decline of 21%. Also worthy of note is the fact that China, a major market for GF, has been at the previous year's levels for the past month.
Slide 6 shows GF's organic sales development over the previous year's month. The chart on the left shows worldwide sales development of the corporation over the 1st 6 months. While the Chinese economy started on a low level due to the early Chinese New Year, it was affected by the COVID-nineteen lockdowns in the region thereafter. Since two regions were heavily affected by the pandemic during April May, GS experienced the lowest sales level in this month. As shown in the chart, June came in rather strong with an organic decline of 3.8% only.
As you can see in the chart on the right, China, the dark green line, after a weaker start has clearly been above the previous year for the past month, which is also true for all three divisions. A recovery in the U. S, blue line and Germany green line can be noted in the recent months after severe lockdowns in April May affected key industries in these regions. Despite the effects of the pandemic, TF did not close any month with an operational loss. Let us now turn to Slide 7.
The EBIT margin before one off items was strongly supported by the higher share of GF Piping Systems
and came in at 4.2%.
The solid performance was further supported by the swiftly taken measures to cope with the drop in sales caused by the COVID-nineteen crisis. GF Piping Systems continued to build on its well diversified global customer base and delivered a strong EBIT margin with 11.1%. Even so, we still have to complete the strategic transformation of GF Casting Solutions with a new plant in the U. S. And the relocation of its German foundry to Austria and Romania, the division had a much more flexible cost base due to the divestment of its iron foundries in the last 2 years.
However, the division was hit hard and came in with an EBIT margin before one off items of minus 7.6%. Geared Machining Solutions quickly addressed the reduction of volumes with appropriate measures in all plants and was able to breakeven despite the sales reduction. Let us continue with the 3 divisions, Slide 8. Geared Piping Systems demonstrated a high level of resilience with its broad customer base combined with a focus on higher value business. As mentioned before, nearly all of the division's plans were declared as essential businesses.
Strong global infrastructure demand and new orders for microelectronic and and cooling applications contributed to the good performance. And the picture on the left is our fabrication shop in Irvine, U. S, which is where products are prefabricated for various applications. Prefabrication and customization is offered in all regions since the trend towards preassembled kits has grown in recent years and especially in the recent months. Sales came to CHF 845,000,000, which were also affected by negative currencies due to the strong Swiss franc.
Sales organically declined by 3%. The operating profit stood at CHF94 1,000,000 with a strong EBIT margin of 11.1%. Slide 9 shows the sales development at GF Piping Systems compared to the previous year's month. The division was rather resilient throughout the first half year and was able to grow organically in June. The well balanced global setup, the qualification as an essential business and the continuation of major construction markets across the world allowed GF Piping Systems to mitigate the impact of COVID-nineteen quite well.
The pictures on the right show water and gas infrastructure applications, a major market of GF Piping Systems. Let's now look at Slide 10. In line with its mission to support customers with intelligent solutions for their sustainable needs, GF entered into a technology and financial partnership with Oxford Flow and Oxford University spin off. GF will industrialize a unique pressure retaining valve made out of plastics to help water management companies reduce water losses in their pipeline infrastructures. On the left, you can see a district cooling pipeline for a hospital to support the secondary cooling system in an environmentally friendly way.
The picture on the right shows a new virtual exhibition platform in addition to many new recently launched digital customer services. Let us now turn to GF Casting Solutions, Slide 11. The division hit the hardest during these turbulent times. The global car industry has been in the doldrums for many months along with the aero engine industry. Consequently, GF Casting Solutions reported sales of only EUR328,000,000 dollars and organic sales drop of 28%.
Even so, the division addressed this decline in orders with strong cost reduction measures. The operating result before one off items came in at an unsatisfactory level of minus CHF 25,000,000. The ramp up in West River was distorted by the lockdown and the reduced call offs. However, the relocation of the Werdulphandri activities to Austria and subsequently to Romania are ahead of schedule and within budget. The strategic move to close down this site helps to avoid major layoffs because the volume can be absorbed with the existing workforce in the receiving plant.
The picture on the left shows the fully automated production in our plant in the U. S. And an artificial intelligence application in our Austrian plant to increase the overall equipment efficiency. On Slide 12, you can see the monthly organic sales development of GF Casting Solutions. Given the consequences of the strategic upheaval of the car industry since 2019, this negative development was strongly accelerated with the COVID-nineteen pandemic.
A recovery of orders can be observed in the last 2 months in the U. S. And Europe, whereas China is already above the previous year's level. During the first half year, GF Casting Solutions had to close down its facilities at the same time as its customers due to the just in sequence delivery and replenishment concept. The global car industry is forecast to be down in the range of 25% with Europe being down the most.
Let's turn to Slide 13. GF Casting Solutions is focusing on new opportunities throughout the world. On the left, you can see a rendering of our new facility in Shenyang, North China, where we received our business license earlier this month. GF has already secured orders for plug in hybrid, battery only and conventional cars, with focus on lightweight structural components. If it's low density of 160 cars per 1,000 people able to drive a car, which compares to 600 in Europe or 1,000 in the U.
S, the Chinese market still offers growth potential. GF also entered into a strategic technology partnership with ZF to further optimize the production of, for example, hybrid transmission housings as shown on the top right. Since the demand for e vehicles has been supplemented by the state subsidies in many European countries, GF was able to secure additional volumes for 8 gs battery housings. Let's continue with Slide 14. GS Machining Solutions has confirmed its strategy 2020 with a strong focus on new technologies and digitalization of its products and solutions.
As we already reported during our media conference in February, machine tool market demand was already lackluster in
the second half of twenty nineteen.
In 2020, the COVID-nineteen pandemic negatively affected demand for machine tools, which fell to the lowest level since the financial crisis of 2,009. The division reported an organic decline of 21% and an order intake reduction of 32%. However, GF Machining Solutions was able to quickly reduce external and personnel costs to partially offset the loss caused by the low sales level. The division was able to breakeven due to high value businesses such as new technologies and resilient market segments like MedTech and ICT, information and communication technologies. On Slide 15, you can see the year over year organic development.
The severe drop in the aerospace business and subdued PMIs worldwide affect the global capital goods markets. Geared Machining Solutions was not so much confronted with cancellations of orders but rather delays in these segments. In the last few months, the Chinese market came in above the previous year. Our plants in Switzerland have been affected by the government and forced lockdowns, whereas our plant in the U. S.
Qualified as essential because it supplies the medical device industry. Let's turn to Slide 16. The division was able to realize success in the medical device industry, as you can see on the pictures on the left, showing 3 d printed implants as well as highly precise wire cut guides for knee surgeries with our latest EDM technologies. We recently signed a collaboration with the University of Applied Science in Tupping, Germany, a region that is known as MedTech Valley with more than 300 companies in this field of technology, to jointly develop applications for this industry. On the right, you can see a bilaser sourced texturing machine, which is unique worldwide and established GF Machining Solutions as the leading supplier in this field.
The machine will enable next generation texturing on materials such as sapphire, glass and metals. With that, I will now turn the call to our CFO, Mats Jorgensen, for a detailed look at our first half financials.
Thank you, Andy. Ladies and gentlemen, also from my side, a warm welcome. I will now present the consolidated financials of the first half twenty twenty. As you can see on Slide 18, in the last line of the table, the overall sales of GF declined by 20.2 percent to EUR 1,528,000,000. This includes the effect of the disposal of the Herzogenbruck iron casting facility, which was fully consolidated in the Casting Solutions division in the first half 2019.
Organically, sales declined by 14%. At the additional level, the events of the first half of twenty twenty clearly had a diverse impact. Piping Systems demonstrated an exceptionally high level of resilience amidst the worst economic crisis in recent decades. The sales of the division came in with a level of €845,000,000 representing an organic decline of minus 3.1%. Industrial Piping markets around the world showed strong performance, in particular in the microelectronics segment and with our CoolFit products.
The gas utility markets was growing strongly in the U. S. And enjoyed solid markets in Europe for repair activities. In China, the utility market for gas largely remained subdued but saw a rebound towards the end of the second quarter. The Building Technology markets in Switzerland and Germany showed no signs of weakness, but in China and Turkey, the markets were clearly subdued.
For GF Costing Solutions, the first half of twenty twenty turned out to be even more challenging than 2019. Sales declined by 27.6 percent organically to SEK328,000,000 The shutdown of the OEM automotive plants around the world led to an unprecedented drop in production. However, during the months of May June, the automotive markets in China started to recover and were even ahead of previous year. The GF Machining Solutions division was also severely impacted and declined organically by 21.3 percent to SEK 355,000,000. This was primarily caused by the slowdown in the European markets, in particular, the traditional mold and dye as well as automotive related segments.
Again, our strategy of growing in new technologies such as laser, femtosecond laser and additive manufacturing also paid off in the first half of twenty twenty. Whereas sales of the established technologies, electronic discharge machines and milling declined by 30%, the Advanced Manufacturing Technology segment only recorded a minor drop of 3%. The historic decline in oil prices and the corresponding decrease in resin prices also negatively impacted sales to a certain degree. On Slide 19, we show the various effects in the sales development starting on the left hand side with the consolidated sales of the first half twenty nineteen, which is adjusted by the €42,000,000 for the divestment of the Austrian Iron Casting Foundry. This brings us to a comparable sales level of 1,000,000,000 €173,000,000 In August 2019, the Piping Systems division acquired Global Supply Company, which added a few 1,000,000 Swiss francs to the first half of twenty twenty sales.
The negative currency effects were significant this year. The Swiss franc strengthened against all leading currencies, hence our overall sales declined organically by EUR 262,000,000. Needless to say, the biggest impact was triggered by the COVID-nineteen crisis, which I will revert to later in my presentation. The next Slide 20 provides an overview of the regional sales development. In the Americas, the organic decline of minus 9.9% was mainly caused by the decline in the aerospace business for GF Machining Solutions.
GF Casting Solutions was adversely impacted by the shutdowns of the U. S.-based OEMs. Piping Systems proved once more to be the most resilient division with an organic sales decline of roughly 4%. In Europe, sales declined the sharpest in organic terms, mainly minus 19.1%. This was mainly due to the several drop off in the Automotive, aerospace and capital goods markets.
Against Piping Systems performed strongly in all its market segments, actually recording even a modest organic sales growth of 0.3%. The Asian region, and here specifically, China, proved to be the most resilient to the COVID-nineteen crisis. By midyear, sales had already covered, recovered somewhat ending up at minus 6.4% organically. All three divisions experienced substantial challenges through the region. However, we did see certain pockets of growth.
Worth mentioning was the boom that Piping Systems enjoyed in the semiconductor sector as well as the substantial machine tool investments done by China to build its own commercial jet engine technologies. Sales in the Rest of the World were mostly impacted by the sound in the Turkish construction market and the devaluation of the Turkish lira. Slide 21 shows details of the currency impact. Currency effects amounted to minus SEK 87,000,000 compared to the effects in previous year of minus SEK 43,000,000. As you can see, the biggest part of the currency effect was attributable to Piping Systems.
This is caused by the division's exposure to a long list of foreign currencies such as Turkish lira, Mexican pesos, Indonesian rupee or Brazilian reais. GF Costing Solutions was impacted both by the lower euro and the Chinese yuan exchange rates. GF Machining Solutions profited from of the U. S. Dollar, which was less impacted.
Overall, the biggest effect was from the euro with minus €28,000,000 But this year, the Chinese yuan also recorded a substantial negative effect of minus CHF 23,000,000. Let us move on to profitability. Slide 22 shows on the left hand the EBIT in CHF 1,000,000 and on the right hand side, the EBIT margin in percent. Please note that there are two columns for the first half of 2020 showing the effects of the one offs from the G and F Costing Solutions Verdu relocation project. Despite the situation in sales and the negative foreign currency effects, Piping Systems was able to keep profitability at €94,000,000 The EBIT margin decreased from 12.7 percent to 11.1%.
Where the European industrial and utility plants remained well loaded during the lockdown, the profitability in North America and Asia suffered. GF Costing Solutions saw a decrease in EBIT from 6 euros to minus €32,000,000 This includes one off costs of €7,000,000 Adjusted for these one off effects, the EBIT decreased by minus €45,000,000 This was clearly caused by the lengthy shutdown of the automotive OEM plants around the world. As you can imagine, a sales reduction of 37% is a major challenge. However, due to the swiftly implemented countermeasures such as staff reduction, short term work and furlough schemes, the division was able to reduce personnel costs by almost 30% close to the drop in sales. The EBIT of GF Machine Solutions decreased from GBP 24,000,000 to GBP 1,000,000, a drop of GBP 23,000,000.
Most of the reduction in profitability was caused by the lower plant utilization in the shutdown period. At consolidated level, the EBIT declined from CHF139 1,000,000 in 2019 to CHF57 1,000,000, including the negative impact of the mentioned one offs of CHF 7,000,000. Besides the higher resilience of our attractive Piping business, GF demonstrated a high level of agility and flexibility in the cost structure, With an overall sales decline of minus 20%, GF was able to reduce personnel cost by 15% and operating expenses by 14%. As a result, the EBIT margin before 1 offs only declined from 8% in previous year to 4.2 percent for the first half of twenty twenty. Including the one offs, the EBIT margin was 3.7%.
On the next Slide 23, you'll find some additional information on the estimated effects of the COVID-nineteen crisis. On the left hand side, you'll find the estimated impact on sales by division and on the right hand side, the estimated impact on EBIT. Overall, we estimate that the effect of the crisis on sales was approximately EUR 330,000,000 in the first half of twenty twenty. On EBIT, the effect is estimated to be roughly €100,000,000 The longer term effects of the crisis cannot be assessed at this point in time. On Slide 24, you see that also this year, the strength of the Swiss bank had a severe impact on the profit of Gf.
In the comparable period of the previous year, the negative currency effects were minus €11,000,000 in 2020. The negative effects increased to minus SEK 23,000,000 and clearly weighed down on profitability. On the left hand side, we show the currency effects by division. GF Piping Systems was impacted negatively from a multitude of foreign currencies against the development of the Turkish lira added to the negative impact. If we adjust for these effects, the corresponding EBIT margin of Piping Systems would have been above previous year's 12.7%.
Due to the natural hedge in euro and Chinese yuan, GF Casting Solutions was covered from the adverse development of these currencies. Slide 25 brings us to the income statement of the corporation. As mentioned earlier, sales declined by 20% to EUR 1,528,000,000. Gross value added decreased by EUR 176,000,000 compared to previous year. Gross value added as a percentage of sales decreased from 38% to 36%, which also reflects the further increase in weight of Geopiping Systems on the results.
The personnel cost decreased by €78,000,000 First, we took countermeasures and decreased the headcount by 7.30 more people compared to the first half of twenty nineteen, hereof, 256 relating to the divestment of the Herzogenburg facility. And secondly, we implemented various short time work schemes around the world. EBITDA decreased by minus €98,000,000 to €118,000,000 Despite the substantial decline in sales, the EBITDA margin remained at a healthy 7.7% level. Depreciation and amortization decreased by minus €16,000,000 to €61,000,000 However, I want to remind you that the 2019 number includes a onetime CHF 14,000,000 of impairment. Moving on to the financial result, which improved by €2,000,000 to minus €10,000,000 The decrease was due to reduction in financial hedging costs and lower interest costs in China and Turkey.
The drawing of the syndicated loan impacted the result by slightly more than CHF 500,000. As you may have seen from recent media calls, the Fundium Group achieved an official restructuring of 1,000,000,000 and ended into an agreement to reduce the staff level. As part of the restructuring and as originally planned, GFS disposed of the remaining 20% stake in the company and waived future interest payments of the loans. The financial effects amounted to overall €7,000,000 and are shown in the lion's share of results of associates. Income taxes decreased to €9,000,000 This corresponds to a tax rate of 23% compared to a tax rate of 20% in 2019.
Net profit after minority interest decreased from €101,000,000 to 30 4,000,000. Turning to Slide number 26, which shows the balance sheet as of 30th June compared to the 31st December 2019. You can see that the liquidity situation at GF remains very strong. Cash and cash equivalents increased from EUR 530,000,000 to north of EUR 770,000,000. This was achieved by drawing short term loans of €435,000,000 which is reflected in the development of the current liabilities from around SEK 1,000,000,000 to roughly SEK 1,400,000,000.
A slight increase in trade accounts receivable of SEK 6.60 €1,000,000 is entirely of seasonal character and mainly driven by Geos Piping Systems. The equity ratio decreased from 43% at year end to 37%, still at a strong level. It should be noted that adjusting for the drawing of the short term loans would bring the equity ratio back up to 42%. Slide 27 shows the development in free cash flow. The lower EBITDA has a significant impact on the free cash flow.
The increase in net working capital is largely of seasonal character. The biggest impact comes from the reduction of accounts payable of more than CHF 60,000,000 due to the lower level of activities and investments. The operating cash flow dipped only slightly in negative territory compared to the EUR 10,000,000 positive in 2019. Investments in property, plant and equipment amounted to EUR 70,000,000, EUR 10,000,000 lower than previous year. Due to the strong liquidity and the less severe impact of the pandemic situation, GF decided to continue.
And in case of a gold relocation at Mills River even to accelerate our strategic investments. This leads to a negative free cash flow before acquisitions of minus €73,000,000 reflecting the known seasonality of previous year. It is worth noting that in particular, the Q2 of 2020, TF generated alone CHF 60,000,000 in free cash flow. This is a clear demonstration of the overall resilience of the corporation in very demanding times. On Slide 28, we have summarized the key figures.
Net debt increased slightly by €16,000,000 to €420,000,000 However, the net debt EBITDA multiple increased from 0.9x to 1.5x. At the very start of the COVID-nineteen crisis, GF decided to draw a liquidity buffer of CHF435,000,000 we are all to be well prepared for the potential unforeseen effects of the crisis. Due to the cash flow situation, liquidity remained high, in excess of EUR 770,000,000 but the decrease in EBITDA caused the deterioration of the net debt EBITDA multiple. Compared to the same period last year, the equity ratio decreased from 41% to 37%. The main reason of the decrease is the decline of the short term loans of €435,000,000 Again, having repaid these loans, the equity ratio would increase to a healthy 42%.
The return on invested capital decreased from 13.8% to 5%. Piping Systems with 20.8 percent clearly earned over and above its cost of capital, whereas the return on invested capital of the 2 other divisions declined significantly. This decrease was clearly attributable to the decrease in net operating profit after taxes. Adjusted for the one off effect, the return on invested capital was 6.3%. The number of employees decreased by 734.
Most of this reduction relates to the strategic transformation of GF Casting Solutions and the adaptation of capacity at GF Machining Solutions. Thank you for your attention. I will now pass on to Andreas for the outlook.
Thank you, Mats. Outlook for 2020, Slide 30. We believe the months to come will be more stable than the previous ones. If there are no unforeseen circumstances or a second global lockdown, we forecast a performance in the second half of twenty twenty, which is at similar level to the first half year twenty twenty sales and profit levels. GF Piping Systems will remain resilient and continue its performance as in the first half.
Microelectronics infrastructure cooling and water treatment projects are supporting the business of the division. GF Casting Solutions will finalize its relocation project ahead of schedule in quarter 4 and may see its first positive impact towards the end of the year. Further, the division will build on stronger demand across the world in the second half. GS Machining Solutions will still have to deal with the low order intake of recent months, however, it may see a slight recovery in sales towards the end of the year, supported by market segments such as ICT, Information Communication Technologies, MedTech and new e car applications. Overall, we remain confident about our strategic direction and well positioned with our 3 divisions with regard to our focus on higher value business and addressing the sustainable needs of our customers.
Our strategy process 2025 is well on track and communication is scheduled for Q1 2021. Thank you for your attention. We are now ready to take your questions.
We will now begin the question and answer The first question comes from the line of Martin Frueckiger from Kepler Cheuvreux. Please go ahead.
Hey, good morning, gentlemen. Thanks for taking my questions. Actually, I have several, but I'll start off with 3 and then go back in line. First question is if you could elaborate a little bit on the status quo at the River Mills plant in the U. S.
And also the financial implications with respect to expected ramp up costs and that reversal? That would be my first question, and I'll take one at a time.
Thank you very much, Mr. Flueckiger.
A short reflection on our Mills River facility. I said the ramp up was distorted by the lockdowns, which we had to adhere to the local authorities in that region. The ramp up costs amounted in the range of mid-1,000,000 amount, but also we had a COVID-nineteen effect on this company during the first half year.
So when you say mid million amount, you mean a low mid single digit amount, right?
A mid single digit amount, yes.
And can you talk a little bit what's going on in China with regards to that major coal to gas project? I haven't heard anything recently, and I was wondering whether there's anything moving around that regarding that project.
All right. The gas to coal project, which has delivered in previous years, outstanding growth rates in the range of up to 20%, It's not any longer of national priority. And so we assume that we see growth rates in this infrastructure projects in ordinary levels, which means between 3% 5%.
And what is the reason why that is no longer of national priority?
That is something we can't answer. It has been removed from the national priority list. However, I think the infrastructure penetration is now at the level which is decent.
Okay. And my third and final question for the time being. I was just wondering about COVID-nineteen infection rates resurging again in a number of relevant markets for you guys, most notably in the U. S. But also, we see the U.
S.-China trade war intensifying again. Do you see any early indications in customer markets and respectively for demand, particularly with respect to casting machining solutions as a result of those resurging problem areas worldwide.
It's a little bit more complex answer.
I think obviously, the China U. S. Trade war affects businesses already since more than 6 months. It already had a severe impact in the year 2019. The philosophy or the setup of GF is in the region for the region.
So therefore, our local sales are not so much affected by this global freight, which is obviously giving us a certain level of resilience. The further effect, as we have seen them in our charts presented, I can repeat them now, but I think it was quite clear that we have been affected by the COVID-nineteen across all regions with an early start in China, subsequently also in the Asian South Asian regions, but also Europe and followed by U. S. Recovery signs have been seen as well, as we have shown in our charts, as the organic sales decline in the month of June was only 3.8%. Does that answer your question, Mr.
Flickinger?
Not really, to be honest. I understand what the situation has been with regards to COVID-nineteen worldwide over the last few months. But at the same time, if you look particularly at the U. S. At an all time high with regards to to infection rates and also death cases.
And also other countries in Europe, including Switzerland, see rising infection rates again. Now I understand the political will is not there for further national lockdowns, but maybe for regional or local lockdowns. And I was just wondering whether you're seeing any kind of reactions so far.
So far, I think at this point of time, it's may not up to us to speculate on nationwide lockdowns in the U. S, although city and county lockdowns have been seen, which affect at this point of time predominantly public life, not so much industries. As we have seen, no industry has been asked to lock down at this point of time in the U. S. That is all what we have seen and what we can confirm.
I think that's public knowledge.
Wonderful. Thanks.
The next question comes from the line of Christian Obst from Baader Bank. Please go ahead.
Yes, hello. And Rippe, Switzerland there. I have three questions also. First on cash flow. So the free cash flow was lower than last year.
And despite the fact that from some of the industrial companies, we have seen an increase in free cash flow because of lower working capital. You talked about lower accounts payable and then some kind of increase in the piping system. But can you give us a more detailed argument while free cash flow declined in the first half year and maybe an indication for the second half of the year? Second question is about the valuation of your casting stakes. You had a special item of €7,000,000 in the first half.
So what do you expect in the second half? And are there any discussions with the auditor about the value of the remaining stake in the Iron Casting business? And last one is on Machining Systems. Now for 4.5 years in a row, we did see some kind of an order decline. And in the first half of twenty twenty, the delta between sales and order intake is minus 10%, which is also some kind of a record.
So what do you expect going forward? Have you adjust some of your capacities auto industry? Thank you.
Thank you very much.
The first two questions will be answered by our CFO. And now we'll give you a short update on the third questions in regards to our Machining Solutions division. Orders have been subdued order intake has been subdued in the 1st 6 months, predominantly due to the lacklustre demand in the global capital good standing markets and industries. Here, we have to note that orders being only recorded a down payment of approximately onethree of the order value has been concluded, and that obviously has been delayed in the 1st 6 months. Or whether we will have to cope with the low order intake in the Machining Solutions divisions where we assume that we're going to see towards the end of this year some recoveries.
The cost structure in that division is, since it is an assembly process and mainly an assembly process, we are rather flexible in that division. And we are using at this point of time the instruments such as short time work but also reduction of overtime and with flexible flexibility with leasing employees. I will hand over for the first two questions to our CFO.
Thank you very much, Mr. Oups. Concerning the cash flow. As you can see, the main reason for the lower seasonal cash flow is obviously the profitability. On the net working capital, it is correct that you have said that we have not made a heartbreak on the inventory side.
But the main effect, as I mentioned in the call, is actually that simply because of the lower level, we procured less, we invested less and that had a massive effect on our accounts payable and more than €60,000,000 negatively. In terms of investment, that is another thing. We decided really to continue the investment of our strategic projects around the world and using the liquidity situation that we have. And that is basically the reason for the slightly lower negative free cash flow in the first half of twenty twenty. In terms of the second half, it is very, very difficult to say where we will be traveling, and we have decided not to give any guidance on the free cash flow for 2024 year.
Your second question is relating to the Funding Group, the divestment of the Iron Casting. It is correct that it influenced the result by €7,000,000 this first half. Half of that was the impact for the equity accounting, and the second half was a technical value adjustment of the loans we had outstanding due to the wavering of the interest rate. The company has received a restructuring opinion according to the German standard IDV S6, and it basically confirms the growing concern of the company. So for the second half, we expect the company to continue to implement its restructuring measures and see, of course, the future according to that plan.
Maybe some or 2 additional questions on that. So are you so this means that in the discussion with the auditors, there's no problem with the value of these stakes when it comes to the next 3 years. So you don't have to adjust more, of course, then. I'm right with that.
As said during the call, we have divested the stake of 20 percent in this group, which was anyway scheduled and foreseen in the years after the divestment. So GF is not holding any longer a stake in that company.
Okay. Thank you for that. And one last one is for the guidance for the next for 2025, of course. Now it's not the right time to make such a guidance. Did I understand it right that you will provide a new guidance for longer term with the Q1 numbers next year?
Yes. In the Q1 twenty 21, we will publish our strategy 2025.
Okay. Thank you very much.
Welcome.
The next question comes from the line of Charlie Ferembach from AWP. Please go ahead.
Good morning, gentlemen. Given the fact that most of the facilities worldwide are producing again and also that Fisher is working with our plants again. Isn't your guidance for the second half consensus profit not rather cautious. Could you give us a little bit more light there? Thank you.
Thank you, Mr. Fierenbach. It is, as we have said, the second half of our cooperation is normally marked or is marked by the seasonality of the summer shutdowns across Europe in our division, Casting Solutions and Piping Systems as well as a month of December, which is in normal circumstances also a reduced month in the Casting Solutions, but also in the Piping Systems division. So therefore, as we said, we expect a similar result compared to the one of the first half of twenty twenty.
Okay. Thank you.
The next question comes from the line of Alessandro Foletti from Octavian. Please go ahead.
Yes, good morning, everybody, and thank you for taking my questions. I would like to come back to this outlook question because it was also for me a little bit surprising that you guys are the same level H1 H2. Now I do understand that you typically have the seasonality effect. But also when I look at your chart that you've published like the slides on Page 6, 9, 12, 15, where you saw the organic growth on a monthly basis of the 3 divisions. They are all pretty much below last year.
Now it is not very likely that we will see, for example, in the automotive business, another lockdown worldwide for many weeks at all factories above what is like normally planned. So maybe can you give again a little bit of an indication on a divisional basis what you expect for H2?
Based on the division level, as we said, we assume that Geared Piping Systems will remain resilient and will continue with its performance as seen in the first half. We see microelectronics projects across the world, not only in China, but also in the Southeast Asian region, in the U. S. And Europe. We see interesting applications around our new CoolFit 4.0 product range, which is 24 to 1 of our system.
I think it also offers applications such as different data centers. So therefore, we feel that we continue with the level of resilience as seen in the first half of the year. And but as said, we have to care about the fact that the second half is normally the weaker half year of that division. Casting Solutions, as you're perfectly right, but here we're going to rely on the situation of call offs of our customers, and the call offs have remained on that level what we have now guided. But we see that there is, towards the end of the year, definitely a higher request for product than in the first half year since we had 6 to 8, we used complete lockdown in many car industries across the world.
For example, 3 weeks in China, but we had 6 to 8 weeks across Europe, and we have also seen 6 to 8 weeks in the U. S, which we do not assume to be repeated in the second half of the year. As said with TF Machining Solutions, order intake has been subdued, and that affects our Q3 because lead time of this machine tools are in the range of 2 to 4 months. And so we have to overcome this period. And we assume that we can build on projects in the ICT, not MedTech, but also new ECA applications for a stronger development towards the end of the year.
I think I can't now rephrase what I said to overall, we expect a similar performance in the second half of twenty twenty as seen in the first half of 2020 in bearing unforeseen.
But is it fair to assume, if I look at the 3 divisions then that maybe piping, which made like $97,000,000 EBIT in H1, maybe brings in a similar amount of millions, maybe lower, a little bit lower. But then casting from minus 25, it should almost only go in the positive direction. Even if they make another loss, it will not be as deep as it was in H1. So somewhere there must be, let's say, you go from minus 25 in casting to minus 10, it means you have to lose another 15 somewhere else. So is it correct to see casting like better and the 2 others maybe piping because of seasonality and machinery because you've said of the order intake that's sort of compensating?
Or is it
What we have to keep in mind is the strong seasonality effect in casting solutions at this division. We see July August, which comes in with the summer breaks and the holiday season in our European facilities, and that is pretty much in line with our customers' development. And even so when you may would have expected after rather than up to first half that our customers would not close down the facilities during summer break, they do close down the facilities during summer break. That means you're going to have to keep in mind that second half consists of 3 months, that means July, August but also December, which are normally not at the ordinary capacity load of our facilities as foreseen.
Yes. All right. Can I ask you 2 very small, maybe almost curiosity like questions? You mentioned in the call that EDM was down 30% and the new technology was flat. Can you give an
drop the second the last sentence. Can you maybe repeat that?
I think it was Mads who gave an indication orally about the development of the different businesses in machining. He was saying that active discharge machineries was down 30%, while the laser and new technologies almost flat. So I was wondering about the high speed milling.
At a
high speed milling, the milling part was down pretty much aligned with the EDM, so it was down by minus 30%. We had a rather resilient service business with minus 20%. If you can see that the markets now being down in the range of 30% to 40% in the first half of the year, if you're going to reflect on the published statistics of SESIMO or for BDMA. So customer service was down approximately 20 percent. And as said, the new technologies in
the laser field have been flat.
All right. My very last question, the minorities, if I look at your P and L, obviously made the loss. I was wondering if it was China that did that and if it was like COVID related and or is it something else?
It's a very simple answer. As we said already answered the question of Mr. Floeckiger. Sorry. No, no, I did not say that, that has an impact on the minority.
Sorry, sorry, don't get me wrong. But the results of our mills were facility in North Carolina, obviously, has a real effect, and therefore, we have a positive result on this minority issue. So therefore, result after minorities is above the result before minorities.
Thank you. Thank you very much.
The next question comes from the line of Armin Resberger from ZKB. Please go ahead.
Yes. Hello, gentlemen. You mentioned good markets in semiconductor business at Piping Systems. Can you elaborate a little bit on that? And then regarding this waiving of the Zinssen at your iron foundries, are they waived for long for how long now?
Or do you expect any payments later on, I mean, 4 to 5 years? Or what happens there?
Thank you, Mr. Rejchberger. I will answer the first question. I will hand over to our CFO for the second question. The semiconductor business has been strong across the world and has shown a growth of approximately 16%, above an already strong first half twenty nineteen.
So major projects have been in the U. S, U. K, but also Taiwan, Japan and other Asian countries and China. So the microelectronics business is also profiting from the nationalization, I can say that. We're going to see more facilities being erected across the world.
So now we're over
And can you tell about how much sales you do there in this in semi?
This is in the range above EUR 60,000,000 for the half year quarter.
Thanks. Your first question, Mr. Erik Berger, the interest payments were waived for about 3 years, Oli. And the effect of €4,000,000 is a technical net present value calculation. So as we move forward into the close into the repayment date, that effect is actually reversed in the accounts.
Okay. When you calculated your EBIT margins and so on, you discounted for the one off effect. So this effect was not discounted when I got it right.
The effect is not in the EBIT. It's below EBIT. It's in
Yes. Right. Correct. Below EBIT. Yes.
So it's actually it's $7,000,000 but we
are $7,000,000 that we are referring to the relocation customer at Dauled.
Okay.
Thanks.
Numerically the same. Does that answer your question, Mr. Hector?
Yes, that answers my question. Thank you.
Thank you, Mr.
Despegar. We have a follow-up question from Martin Frickiger from Kepler Cheuvreux. Please go ahead.
Yes, thanks. I'd like to take my follow-up. Actually, there are 2. Firstly, on the raw material prices and semi price developments in H1 and also your expectations for H2. I was just wondering what kind of financial headwinds do you see or have you seen, firstly, from raw material prices on selling prices as well as the adjusted group EBIT in H1?
And what are your expectations for H2? And I'll come back to my second question
just a little bit.
Okay. The raw material prices had a minor impact in the first half twenty twenty. Obviously, we had a few resins in our pipe business, which have come down, which have been oil related. Mats will give some further details on this topic.
As we normally have in Piping Systems, the annualized pipe sales that are linked to raw development prices is about €300,000,000 commodity type. And the effect, as Sanderier mentioned, is in the single digit million area positive because most of the lower raw material effects are actually passed on to our customers. So the effect is definitely minor in the first half. And for the second half, we don't see any further positive effect from it. It should be rolled over to the customers.
Okay. Thanks. So then So then What was your overall average selling price development in H1, sorry?
So could you repeat the question? We are starting with the acoustics.
I'm sorry. So what was the impact on selling prices in H1? Were they negative, flat or positive?
It was a slight negative effect of the raw material prices, probably as an effect of the lower pipe prices. So overall, we expect but clearly below 1% effect. Okay. And that's for
the group. That's not just for pipings, right? That's for the group. That's for the group, yes. Okay.
And then just to follow-up on that $7,000,000 one off surcharge. Sorry, I didn't quite understand how much of that was cash and how much was non cash or whether it was all cash. Eric, just clarify that, Eric, let me please.
The EUR 7,000,000 effect is generally noncash, and it consists of the equity accounting. It's half of it. And the other half is, as I explained previously, is the discounting the technical value adjustment of the loan. So But still noncash, yes.
And in regards to the Berdul closure, which is the $7,000,000 one off items, I think that has been also a provision, but obviously, cash
items have happened during the course of first half. Mats, you might give a short update on that one. In the first half, we had probably negative effect on the Vedau relocation in the year around EUR 20,000,000. Our first guidance that we gave last year for the full year was about EUR 45,000,000 negative. It is clear that we will come out substantially lower, probably $10,000,000 to $10,000,000 lower than our first guidance on the cash negative effect of it at all.
Does that answer your question,
right? Yes.
Perfect. Thank you so much.
The next question comes from the line of Andy Schneider from ZCapital. Please go ahead.
Hi, gentlemen. I would have a question on the potential FX effect in H2 taking current spot rates, what would you expect the negative currency effect to be in H2 on sales and probably also maybe EBIT from today's point of view? Thank you, Mr. Schmitter. I'm going to pass on this question to our CFO.
Thank you very much. Mr. Schmitter, the effects in the second half probably will be in the area of minus 5% to 6 percent on the sales side. On the profitability side, we are not able to really estimate that because it is very, very dependent on when it happens and which currency at one point in time. But the current estimate on the top line could be minus 5 to 6% in the
second half.
The next question comes from the line of Daniel Koenig from Bank of Mirabeau. Please go ahead. Yes, good morning. I had two questions. Actually, I was wondering how many employees were in H1 on a furlough scheme and if there are still some employees on furlough scheme on short term working schemes.
And then the second question would be, is there any inventory effect on your sales development? Has customers stocked up? Or is there any development in this respect? Thanks.
Thank you. Mr. Koenig, I'm going to answer the second question in regards to stock up effects at our customer side. I've seen just ahead of the crisis during the pandemic crisis some slight increases and pileups at our customers' level, but that was during Q1 and Q1 and beginning Q2. So overall, in the first half, I would say now this effect has been mitigated and being neutral.
In regards to people being in furlough at the end of this month, It is during the peak month in April. We have had more people on furlough in the range of 400. And overall, we have on short time work a considerable amount of onethree of our people across the world being affected in the range of 30% to 50% short time work. So that means approximately 4,000 people at the peak month being on furlough, floorplan work or flex time reduction with an average of 30% to 40% onethree effective.
And are there still some people on short term work currently?
At this point of time, we have hardly any people on short term work since the month of July August. Rather holiday months, and therefore, people have returned to work at the end of June and are considered to be on holidays during the upcoming 2 months. And so therefore, we hardly have any people on short term work.
Okay. Thanks. The next question is a follow-up from Alessandro Volletti from Octavian. Please go ahead.
Yes. Thank you for taking my follow-up. Probably you already partially answered this question to Mr. Flutiger before. But on the EUR 7,000,000 restructuring charges for Verdel, is there anything still upcoming for the second half of the year and next year?
Yes. There is another SEK 7,000,000 expected in the second half of the year.
And this so 7.7,000,000,000,000. Am I right saying that this is maybe a little bit lower than you indicated before? Or do I have wrong numbers in my head?
It's a tad below what we have indicated previously, but that's also due to the accelerated relocation of this project. As we have said, we are slightly ahead of schedule. And therefore, obviously, we could also reduce the one off items slightly.
And when 2020 is closed, then this is finished?
That's at least our
The next question comes from the line of Marc Posa from BB AG. Please go ahead.
Yes. Good morning, gentlemen. I was just wondering whether you could describe the partnership you have on a technology basis with ZF. Is that some sort of a unique and exclusive partnership? Is this something that you do regularly?
And how big could the whole partnership become in terms of strategic importance for Georg Fischer?
Thank you for your question. It is a very important collaboration and technology agreement, which we have signed with ZF. And yes, we're going to try to do it here and there, but ZF is one of the largest customers in regards to such a technology cooperation, and it is in regards to optimizing production and design processes when it comes to the production of gearbox housings. ZF is a rather large customer to GF, and therefore, it is important predominantly when we consider the next generations of transmission housings, which are particularly and especially designed for hybrid technologies. And the technology partnership, as said, concludes or includes also the technologies how to produce and how to design the mold technology, where you may have seen that GF is owning a mold maker and also in regards to what kind of technical production parameters are in the best to produce this kind of product.
Does this answer your question?
Yes, partly or maybe I have to phrase it differently. The exclusivity from both sides, could you describe that? And is that from a tendency point of view, something that we will have to face more and more, I. E, the bigger customers want to work with the bigger suppliers, GF being one of them, on an exclusive basis and therefore with very long term kind of nonvolatile developments?
Unfortunately, I have to restate it. It is not nonexclusive to a large extent. It is mainly nonexclusive in the regards to the narrow part of this technology partnership, but it is not an exclusive technology partnership. So ZF is relying on many suppliers when it comes to cast parts. So GF would never ever be able to service the needs of the ZF as a whole.
And therefore, it can't be exclusive. But what we see is more partnerships when it comes to development and design of new parts, predominantly in the field of lightweight components such as magnesium or aluminum body and structure components. Here, we see more and more technology partnerships from early stage for the lifetime of a car for the lifetime of a component. And this is mainly driven due to the fact that also our customers are relocating their resources towards the new and strategic transformation processes. We see them also predominantly with new customers in the Aegean region, primarily in China, but not exclusively in China, also in the U.
S.
Okay. Thank you very much. The last question from today is a follow-up question from Martin Flueckiger from Kepler Cheuvreux. Please go ahead.
Yes. Thanks for your patience, gentlemen. Just a very quick and technical question for Maritza, I suppose. So if I do the math on that EUR 7,000,000 one off in Closet Solutions, am I right that underlying depreciation amortization in that division, I. E, Glassing Solutions, is now at around €19,000,000 to €20,000,000 and that's a sustainable amount going forward, I.
E, around €40,000,000 for the full year. Is that correct?
Did you ask the depreciation level, the ongoing you want to know the ongoing depreciation level for this division?
Yes. I'm just trying to figure out for modeling purposes what the underlying depreciation and amortization charge is going to be going forward and whether my calculation is correct that it's around €40,000,000 for 2020 in Cast and Solutions.
For the full year, yes. For the full year, yes. So we'll see approximately.
You got that? So the gas is pretty much in line, what is our forecast on that topic.
Okay. Thank you so much.
Thank you, Mr. Flutiger.
There are no more questions.
So then we would like to conclude this call. And thank you very much for your attention and your time and your interest in our cooperation. Thank you.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.