Ladies and gentlemen, welcome to the Georg Fischer Mid Year Results 2019 Conference Call and Live Webcast. I'm Iruna, 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 and A session. The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Andreas Mueller, CEO and Mats Jorgensen, CFO. Please go ahead, gentlemen.
Welcome and thank you for joining our half year conference. Present on our side are Mads Jorgensen, CFO Daniel Boesiger, Head of Investor Relations Beat Brummer, Head of Corporate Communication and myself, Andreas Muller. Let's turn to Slide 2. During the first half year of twenty nineteen, we completed with a very strong first half year of twenty eighteen. Geopolitical uncertainties such as the trade dispute between the U.
S. And China and the upcoming Brexit in Europe worsened and negatively affected the economic environment. We experienced a 5.5 organic sales decline in the first half year of twenty nineteen. The decrease of 20% to SEK 1,915,000,000 was mainly due to the divestment of 2 German iron foundries at the end of last year with sales of approximately SEK 352,000,000 for the 1st 6 months of 2018. Currencies turned into headwinds, whereas they were supportive this time last year.
The operating result was affected by the reduction in sales and declined to SEK 153,000,000 corresponding to a return on sales before one off items of 8%, whereas the same time last year we achieved 8.7%. The swiftly taken measures at Casting Solutions caused one off costs of approximately CHF 65,000,000 out of CHF 14,000,000 are reflected in the mid year results. The EBIT margin of the one off effects came in at 7.3%. I will go into more detail about this later. The Strategy 2020 implementation is fully on track.
The production footprint adaptation of GF Casting Solutions will secure higher margins after implementation and increasing the competitiveness of the division. Slide 3 shows an uneven sales development of our 3 divisions. The most resilient one, GF Piping Systems organically confirmed the strong first half year 2018 with a reported growth of 11% back debt. 3 quarter of the decline of GF Casting Solutions is on the account of the divestment of the 2 German iron casting companies end of 2018. GF Machining Solutions faced subdued customer demand in China and lackluster sales in Europe.
As a result, the division organically came in 9% below previous year. Let us turn to Slide 4. The EBIT margin was strongly supported by the largest division, GF Piping Systems, which increased its margin by 60 basis points to a strong return on sales of 12.7%. The focus on higher margin business and innovations is showing result. As the utilization of most GF Casting Solutions foundries decreased, EBIT margin dropped to 3.9% or 1.2% after one off items.
The weaker first half at GF Machining Solutions resulted in an EBIT margin of 5.1 percent below the extraordinary strong first half of twenty eighteen. Slide 5 shows the return on invested capital. The reduced EBIT is considered the most important reason for a reduction of the overall return on invested capital. We have initiated measures at GF Casting Solutions and they will bring back the profitability of this division into the strategic corridor in the next 2 years. Let's move to Slide 6.
On Slide 6, you see the sales by region and by division. For the first time, more than 50% of sales were generated outside Europe. The strong development of the Americas, but also the strategic transformation of the division Casting Solutions are the main pillars of this shift fully in line with our strategy 2020. Let's continue with the 3 divisions on Slide 7. GF Piping Systems experienced a solid demand from markets addressing megatrends.
The division confirmed its strong first half year twenty eighteen before currency effects with sales of 921,000,000 dollars Healthy order intakes in Americas and Europe compensated the subdued demand of churn. The focus on higher margin business and solutions and the well loaded plants resulted in the strong profitability increase of 60 basis points to 12.7%. On the right hand side, you see a new application for our CoolFit and prefabricated service. The Pantun based data center increased energy efficiency by more than 80% and hence reduced operating costs by 30% compared to conventional data centers. We were able to supply and design preassembled piping systems kits as outlined in the small picture.
On Slide 8, you see 2 typical water applications. On the left hand side, an ultra filtration system to enhance the water quality before it is returned to the groundwater. A Californian initiative to replenish the groundwater basins in the Southern California region, mainly industry and prefabricated products are built in. On the right hand side, you see a new water pipeline reducing water loss by 15% in the Sao Paulo Metropolitan area in Brazil. GF is providing jointing technologies, fittings and services for this important project for our customer service.
Slide 9. Turning now to GF Casting Solutions. The division was affected by a significant reduction in demand by the Western Europe and Chinese car industry. Shifts within the product ranges of important customers as a result of the new emission standards additionally amplified this effect. The German iron casting companies divested last year contributed to the reduction with €350,000,000 Whereas currencies were highly supportive last year, they turned into headwinds this year.
Organically, the division sales fell by 11% to CHF 521,000,000. As a consequence of the reduced utilizations of the casting factories, the operating result before one off items sank from CHF 60,000,000 to CHF 20,000,000, which equals an EBIT margin before one off items of 3.9%. The new light metal plant in Melts River, USA has started operation. However, ramp up of new orders still weigh on the half year result in the amount of CHF 8,000,000,000. We are quickly addressing the changed market environment by adopting our footprint in Europe.
Over the coming months, approximately 300 shops will be shifted from the location in Vadore, Germany to Romania and Austria. By accelerating our strategic roadmap implementation, we will expand the light metal foundry oil casting in Romania, which we acquired in autumn 2017 to accommodate the transferred customer programs. This measure will clearly increase our competitiveness in Europe. To complete the strategic withdrawal from iron casting in the European automotive industry, Gf is also planning to divest the iron foundry in Herzogenborg, Austria. Following the divestment of the plants in Singen and Wettmann, Germany, it is foreseen to close the transaction in the second half of twenty nineteen.
Onetime costs of approximately CHF 65,000,000 in total have been assessed for these two measures. Let's turn to Slide 10. Gf Casting Solutions strongly invests in the future. On the left side, you see already an expansion of the Light Metal Foundry Mills River, U. S.
The new production building will accommodate value adding processes such as machining and assembly for complex light metal components. On the right hand side, you see a picture of the new Additive Technology Production Center, A Motion, in Stavio, Switzerland. This company focuses on parts for the aerospace industry made by Additive Manufacturing Technologies. Slide 11. Let's turn to GF Machining Solutions.
Sales in the first half organically fell by 9% to CHF 525 1,000,000 Markets, especially businesses in China, posted a strong decline due to the trade tensions with the U. S. In addition, we have not seen many customer innovations in the ICT, Information and Communication Technology segment, which could have driven investment spending of this industry. Order intake for new technologies such as laser milling, laser texturing and additive was up by more than 70%. Aerospace orders, especially in the U.
S, remained
on a strong level and
mitigated the subcu demand in Asia. As a result, we could realize a good book to bill ratio of 1.1. As you can see on the right hand side, innovations remain key for the division. The pictures illustrate a worldwide unique EDM spark control technology to enhance quality and traceability by simultaneously reducing energy consumption. However, less sales led to result below the very strong previous year.
EBIT amounted to CHF 24,000,000 with a return on sale of 5.1%. Let's move to Slide 12. GF Machining Solutions recently launched its new generation laser texturing machines. This environmental friendly technology replaces asset based methods. And on the right hand side, you see a laser milling machine designed to process new high-tech materials such as CMC, Ceramic Matrix Composites predominantly used in the aerospace industry.
Let's move to slide. Next slide. With that, I will now turn the call over to our CFO, Mats Johansen, for a detailed look at our first half financial.
Thank you, Andreas. Ladies and gentlemen, also from my side, good morning, and welcome to this call. I will now present the consolidated financials of the first half of twenty nineteen. As you can see on Slide 14, in the last line of the table, the overall sales of GF declined by 20.1 percent to €1,915,000,000 This includes the disposal of the Singen and Mittman operations. Organically, sales declined by minus 5.5%.
At the divisional level, the first half of twenty nineteen was characterized by quite diverse situations. Pipedex Systems again performed strongly and came in with €921,000,000 organically at previous year's level. The strong performing European markets and a solid situation in North America compensated for the decline that the division experienced in the Chinese market. Here in particular, the utility pipe market was down due to the continued postponement of the coal to gas project. For Casting Solutions, the first half turned out to be quite challenging.
Sales declined by 43.6 percent to CHF 521,000,000 mainly due to the divestment of the SINGH and Midland foundries. Adjusted for this project, sales declined organically by 11.1%, driven by the substantial reduction in call offs in Europe and in China. Sales at GF Machining Solutions declined organically by 9% to €474,000,000 This was primarily caused by the the sales of new technologies such as laser, femtosecond laser and also Additive Manufacturing recorded sales growth of 31%. With the divestment of the Iron Casting Companies in Germany, the corporate exposure to material cost fluctuations has been reduced significantly. On Slide 15, we show the various effects in the sales development.
Starting on the left hand side with the consolidated sales of the first half of twenty eighteen, which is adjusted by €352,000,000 for the divestment of the 2 iron casting foundries. This brings us to comparable sales of €2,444,000,000 In April 2018, we acquired the Pritzkerks Group, a leading investment casting company in Switzerland. And this year, we therefore had the consolidation effect in the Q1 of €28,000,000 The currency effects were negative, mainly driven by the weakening of the euro, the Chinese yuan and a 25 percent devaluation of the Turkish lira. Overall, our organic sales declined by €14,000,000 and the lion's share of this decline relates to the situation in China.
On the next Slide 16,
this provides an overview of the regional sales development. All three divisions actually increased sales in North America. In Europe, the organic sales declined by 4.1%. This was mainly due to the severe drop of GF Costing Solutions markets. On the other hand, GF Piping Systems performed strongly with organic sales growth of more than 5% driven by all 3 business areas: Industry, Utility and the Building Technology area.
The Asian region declined the most by €88,000,000 or 13.6 percent organically. All three divisions were heavily impacted by the difficult situation in the Chinese market. JF Machining Solutions the most with sales in China declining by 31%. Sales in the rest of the world, mostly impacted by the devaluation of the Turkish lira. Organically, however, sales decreased by 1.3% due to the strong performance of GF Hakan in Turkey.
Slide 17 shows the details on the currency impact. The currency impact amounted to minus CHF 43,000,000 whereas the effect in previous years was actually positive with CHF 97,000,000 As you can see, the biggest part of the currency effect was attributable to Piping Systems. One of the reasons is the exposure of the division to the Turkish lira. Casting Solutions was both impacted by the lower euro and the Chinese yuan exchange rates. Machining Solutions profited from the appreciation of the U.
S. Dollars and hence was less impacted. Overall, the biggest effect was from Euro with minus €23,000,000 Let us now move on to the next slide to profitability. Slide 18 shows on the left hand side 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 twenty nineteen showing the effects of the one off from the Casting Solution relocation project.
Despite a flat situation in sales, Piping Systems was able to increase the profitability to €117,000,000 the EBIT margin increased from 12.1 percent by 60 basis points to 12.7%, driven by the strong load of European and North American production plants. This compensated for the EBIT shortcoming in China. GF Costing Solutions saw a decrease in EBIT from €60,000,000 to €6,000,000 This includes a value adjustment on fixed and current assets of in total €14,000,000 Before these one off effects, the EBIT decreased by €40,000,000 This was primarily caused by the strong decline in sales but also due to the continuing ramp up costs in our Melrose River facility in the U. S. I will revert later to the effects of the Vadore relocation project and the Herzogenbog potential divestment.
The EBIT of Geof Machining Solutions decreased from €42,000,000 to €24,000,000 a drop of €18,000,000 hereof €15,000,000 in general relates to the lower sales volume and approximately €3,000,000 relate to the move of the new build facility. At corporate level, the EBIT declined from €208,000,000 in 20.18 to €139,000,000 included the mentioned one offs of €14,000,000 As a result, the EBIT margin declined from €8,700,000 in previous year to €7,300,000 for the first half of twenty nineteen. And before one offs, the EBIT margin was 8%. On Slide 19, you will find the details of the currency impact on profitability. Previous year, the currency effects were positive actually by €6,000,000 In 2019, the effects were negative by minus €11,000,000 and thus weighed down on the profitability.
On the left hand side, we show the currency effects by division. GF Piping Systems was impacted negatively from the strengthening of the U. S. Dollar as a lot of the raw materials are procured in this currency. Also a drastic decline in the Turkish lira added to the negative impact.
GDF Casting Solutions was due to its natural hedge in euro and Chinese yuan less impacted by the adverse development in these currencies. Slide 20 brings us to the income statement of the corporation. Mentioned earlier, sales declined by 20% to €1,915,000,000 Gross value added decreased by €147,000,000 compared to previous year. Hereof, €86,000,000 was due to the changes in consolidation. The gross value added as percentage of sales increased from 37% to 38%.
The personnel costs decreased by €81,000,000 most of which was due to the divestment of the 2 German plants. Organic costs increased by €11,000,000 driven by ordinary salary increases. The EBITDA decreased by €66,000,000 to €216,000,000 Despite the decline in sales, the EBITDA margin stayed strong and only decreased by 50 basis points from 11.8% to 11.3%. Depreciation and amortization increased by €3,000,000 to €77,000,000 Behind this development was a decrease in the depreciation of €9,000,000 from the divestment of the Singen and Medmont plants. And on the other hand, the relocation of the production from Verdu caused an impairment of fixed assets and net working capital of €14,000,000 Moving on to the financial result, which decreased by €4,000,000 to €12,000,000 The decrease was due to the cost of an additional corporate bond that we had last year and which was repaid in September 2018.
And furthermore, the strong cash position in China lowered the need for local credit lines. Income taxes amounted to €25,000,000 and the tax rate remained stable at 19.7%. Net profit after minority interests decreased from €150,000,000 to €101,000,000 Slide 21 shows the development in the free cash flow. The lower EBITDA was partly compensated by a lower increase in net working capital. The first half twenty eighteen was characterized by a very strong sales growth and hence a stronger need for working capital.
The operating cash flow decreased by €36,000,000 to €10,000,000 Investments in property, plant and equipment amounted to €80,000,000 CHF 14,000,000 lower than previous year. The reduction relates to the finalization of the new build facility for GF Machining Solutions. The biggest investments in 2019 relates to the continued ramp up of the GF Linamar joint venture in the U. S. This leads to a negative free cash flow before acquisitions of €58,000,000 close to previous year's €55,000,000 For the full year, GEF is targeting a free cash flow before acquisitions in the range of €150,000,000 to €200,000,000 On the next Slide 22, you will find some additional information on the relocation of the Verdoh plant and the potential sale of the Herzogenborg ion casting facility.
For the full year 2019, we expect a one off EBIT impact of €48,000,000 consisting of €38,000,000 for the relocation of the Verdor plant and up to €10,000,000 for the divestment of the iron casting plant. The CHF 17,000,000 expected one off costs in 2020 relate mostly to the ramp up of the production in the new locations in Romania and Austria. In the lower part of the table, we show the cash flow effects. Of the overall €65,000,000 EBIT effect, only €35,000,000 is cash effective, of which most would take place in 2020. €30,000,000 of the cash effects are capital expenditures to be invested in the expansion of our Romanian facility and in the 2 Austrian plants.
These capital expenditures should, in general, not be considered on top of our ordinary capital expenditures. In the year 2021, we expect to sell the property in Berdol. The payback of the relocation project is around 3 years. On Slide 23, we have summarized the key figures. Net debt decreased by €76,000,000 to €404,000,000 This was mainly caused by the Noah lead for interest bearing debt.
The net debt EBITDA multiple remains low at 0.1x. And in addition, it should be noted that in June, we have secured a new syndicated loan of €400,000,000 up from previously €250,000,000 and the loan includes an extension for additional €100,000,000 to €500,000,000 This facility is undrawn at the moment. The equity ratio increases from CHF 34.7 and remains healthy at 41%. This is also in line with the equity ratio at the end of 2018. The return on invested capital decreased by 7 0.4 percentage points to 13.8%.
The decrease was attributable to the decrease in net operating profit after taxes. Adjusted for the one off effects of the Berdul relocation, the return on invested capital was 15.5%. The number of employees decreased by 19 26. Most of this reduction relates to the divestment of the 2 iron casting foundries. Thank you very much for your attention, and I now pass on to Andreas for the outlook.
Thank you, Mads. Let's turn to Slide 25. Our Strategy 2020 implementation remains the pillar of our daily work. We want to further expand in growth markets, which is our first strategic thrust. Our shift to higher margin businesses, our second thrust, is developing satisfyingly.
And our 3rd thrust, strong focus on customer driven innovation has been accelerated and accomplished by using digitalization technologies. Trade tensions and the clear slowdown in the automotive market are expected to continue to affect demand in various industries worldwide, especially in China. The portfolio shift to less cyclical businesses in all three divisions and to create the share of GF Piping Systems in the GF portfolio will continue to help minimize the impact of the economic downturn. The stronger focus of GF Castingsolutions on light metal components and activities outside the automotive sector will continue. The measures that have been swiftly taken will lead to onetime costs in 2019 2020.
But after this, they will contribute to a significant improvement in operating performance. TF Machining Solutions has a solid order book, which should lead to a stronger second half year than the 1st 6 months. Chances are therefore given for improved results for both days and profitability in the second half of twenty nineteen compared to the 1st 6 months. With our unforeseen circumstances, TF expects to achieve for 2019 an EBIT margin before one off items of about 8% and then return on invested capital between 14% 18%. For 2020, GF continues to target the objectives that were revised upwards in 2018 of 9% to 10% return on sales and 20% to 24% return on invested capital.
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 Jon Ifford with UBS. Please go ahead, sir.
Good morning, gentlemen. Thanks for taking my questions. The first one is on your outlook for the second half. You mentioned there's a chance second half could be better than the first half on sales and profitability. Do you already see something for Q3 here?
Is it really your sales force feedback there is right in customer activity? Or is it more kind of, yes, thinking base in Q4 is lower and there are some hopes for Q4? So some more clarity here would be appreciated. Second question would be, please, on your SG and A cost savings. With your revenue run rate falling in Casting Solutions, I mean, as you mentioned, you're relocating 300 people.
Savings are maybe $3,000,000 $4,000,000 if I calculate it correctly. But is there more to come in the other sites to adjust for new reality? And what could be roughly the cost saving number for 20 20 benefiting your EBIT? And last question on capital allocation. I mean, again, some more EBIT loss and anticipated potential by the market in the U.
S. For the joint venture with Linamar. I think you, in total, have maybe already cash burn, €60,000,000 €70,000,000 €80,000,000 When is the payback expected? When do you expect this to be breakeven? And what could be the revenue run rate with new contracts then in 2 to 3 years?
Thanks very much.
Thank you very much for your questions, Seifert. I will answer the first one, and I will pass on the second one about the cost savings to our CFO. The outlook for the second half looks different in all of our 3 divisions, whereas Piping Systems have seen quite substantial new projects being announced in the semiconductor industries for mega fabs and also with a solid order book in Europe. We assume that this division will have chances to achieve an organic growth at the end of the year for the full year. We do not see any catalysts in the casting solutions businesses in the car industry.
So we remain on the level what we have seen in the first half. In Machining Solutions, as we have mentioned in our presentation, we have a positive book to bill ratio of 1.1. We have acquired Aerospace MedTech orders in the first half of this year, which are due to be expedited in the second half of this year. And following a natural trend, this division normally has a stronger second half year. So we therefore assume that we will make up part of the 9% in the second half.
Obviously, we do not expect the division on a full year scale to be inorganic positive figures. We still assume that there will be an organic decline, but not in the magnitude of the first half. So that's for our outlook. And I will now pass on to Mats Johansson for the SG and cost savings and the capital allocation payback.
Thank you very much, Andreas. And Mr. Eva, on the SG and A cost reductions, we have implemented measures in the 3 divisions, mainly in the area of temporary staff as well as lease staff and focus on external expenses. The effect of this, you can actually see that reflected in our year end guidance and forecast for the profitability. Specifically to Casting Solutions, the relocation projects, we expect savings in the area of CHF16 1,000,000 to CHF18 1,000,000 on a full year basis.
Last question was about the capital allocation and the payback expectations of our Belz River facility. As you may have seen in our presentation, we have been successfully acquiring further value adding steps and processes for our products, which going to make our focus even more on this higher value business. And that means overall, we expect to have a breakeven in this company at least in the year 2020. And payback should start in the year 2020 as well.
Many thanks. Very helpful.
The next question from the phone comes from Patrick Lager with Credit Suisse. Please go ahead.
Yes. Good morning, gentlemen. Quick question regarding Austria. How much sales, EBIT, assets and liabilities are actually attached to this plant in Herzogenburg? I mean, this, of course, is very key to understand what could be the improvement in terms of return on invested capital.
So that's point number 1. Point number 2 or question number 2 would be around GS Machining Solutions. I'm quite surprised to see the negative leverage here, operating leverage. I mean, sales were down 9%. EBIT was down 43%.
You said that SEK 15,000,000 was due to lower sales. It looks like basically that the cost absorption has been very, very weak here. Any reasons for that? So this would be question number 2. And question 3 is coming back to the point made or to the answer you gave regarding your sales outlook in H2.
Basically, here, I'm just wondering why you're not committing to a sales guidance for 2019. I mean, you gave some color for each division, but you have not given any sales guidance. Thanks.
Thank you very much. Very good questions, Mr. Lager. I will answer first one. The Hertogenborg side is in the range of €80,000,000 sales.
The capital employed most likely is in the range of €20,000,000 to €25,000,000 And the planned divestment should happen in the second half of twenty nineteen. What is the negative operating leverage? You have mentioned for Machining Solutions. It is a high margin business, and the focus here is on the machines. And the sales drop materialize substantially than in a missed or less contribution margin.
In terms of sales outlook, you're right. We have given somehow the detailed outlook for all three divisions. And we would come up with if we're going to guide that as a consolidated figure in the range of minus 3% to minus 4%. Okay. Thank you.
The next question from the phone comes from Charlie Fjerdemberg with AWP. Please go ahead.
Good morning,
gentlemen. I'd like to come back to Casting Solutions. We had organically a sales drop of 11% in the first half. I'd like to know if this do you think this is the peak of the weakness? Or what do we have to expect for the 2nd semester?
Is there to expect a further deterioration of the car market? Question 1. And the second is you mentioned a shift in products with important customers. Could you give us a bit more light there? What does this mean for Bjorg Fischer?
Thank you.
Thank you very much. Very good questions. I will try to answer the first one. The second half year in the car markets, we do not expect any major catalysts or we do not see any major catalysts. That's the reason why we remain on the same level as the first half of the year.
But we do not see any further negative catalyst at this point of time. But who are we to judge what will happen in the second half in the car market? But that is our assumption. Coming to your question number 2. The shift of our product of the customer products portfolio is mainly driven by the WLTP, which is these emission standards, which have terminated certain product lines earlier than anticipated.
If you talk about certain engine blocks, they may have discontinued approximately or suddenly, which hasn't been expected before. And that has accelerated the effect on our Casting Solutions facilities in Germany. I hope I answered your question.
Thank you. May I add just an understanding question. Did you answer before for a sales guidance of minus 3% to minus 5% for the full year organically. Did I understand this correct?
Absolutely, it's organically and it was 3% to 4%.
3% to 4%.
Yes.
Thank you very
much. The next question comes from Tobias Pfann, Holz with MainFirst. Please go ahead,
sir. Yes, hi. Just a follow-up. On the auto business, which you mentioned, I was wondering, I mean, your 11% drop was a bit stronger than I expected. The market might have been around, let's say, 7%, 8%.
Then you mentioned the run out of order blocks. Do you see comparable run out of special models and projects also in the second half? And could you comment here as well on your long term order books, especially in the e mobility segment. So did I get it right that you still see minus 11 percent organically then also for the second half? Or do you see then the absolute sales level in H2 versus H1?
That would be the first one. And then maybe you could guide us through your CapEx assumptions for 2019, 2020, '21, including all these additional investments?
Thank you, Mr. Barnhold. It's very good questions. I will answer the first ones, And the last one will be Antipar, our CFO. We will not see any additional disruptions by the product portfolios of our customers since they have happened in the first half of twenty nineteen.
We see the markets we are in, predominantly Germany or Europe and China, being both down in the first half year above 10%. I think China was down by 14%, whereas Germany has been down by 10%. So that is the market where our casting facilities currently are supplying their products. The ramp up of the American facilities was positive since we had a positive base effect there, but it's still minor sales in the range of SEK 20,000,000 plus. So we have an order book secured as last year stated with more than 30% for electronic or electric vehicles.
And we are facing the ramp ups of this project currently. So we're going to see these projects coming on stream end of this year but also in the years to follow. So we're going to see us busy by phasing in these opportunities into the future in the next years. If in regards to capital expenditure, I will hand over to Marc.
With regards to capital expenditures for the year 2019, we expect to be in the area of €200,000,000 to €210,000,000 as previously mentioned. And for 2020, we will also see that level of investment. 2021 is, of course, far out in the future, but we would expect long term to go to a lower level.
May also to add on the e mobility business via GFC, rather opportunities, good opportunities for us since e mobility drives for lightweight design components and this is exactly where we focus in our businesses. We call these higher value businesses where we can add value to our customer needs. Did we answer your questions, Mr. Fahrenholz?
Yes. Thank you.
Thank you.
The next question from the phone comes from the line of Michael Lichtvar with Bank Von Torbel. Please go ahead.
Good morning, gentlemen. Thank you very much for taking my questions. I would have one question regarding just raw material prices mainly for casting solutions. Do you see any headwinds that impacted your results in first half? And how do you see this developing in the second half?
Then maybe a second question for Piping Systems. Do you see any recovery coming from this coal to gas heating transformation in China coming? Or is this going to be also subdued for the next 6 months or longer?
Thank you, Mr. Lichtwa. Very good questions. I will answer the second one and Mr. Loehrn is in the first one.
I will start with Piping Systems, our coal to gas project. Yes, you are right. It will be still subdued for the second half of twenty nineteen. We are not seeing any catalyst at this point of time that this project is being reassumed. It's mainly due to
the
gas supply out of Russia, which has to be finalized before this project is going to restart. And we're going to see this project restart in the course of 2020.
Mats, if you On the raw material side, the raw material development was not significant to the EBIT level. We saw a slight decrease in the aluminum prices. But on the EBIT level, again, the effect was neglectable in the first half. In the Piping Systems area that buys polyethylene, we also saw some price decreases. But in that industry, the price increases or decreases are passed on immediately to the customer.
So also there in the first half, a negligible effect.
Did we answer your question, Mr. Lichener?
Yes, perfectly. Thank you very much.
The next question from the phone comes from Martin Flueckinger with Kepler Cheuvreux. Please go ahead, sir.
Yeah. Good morning, gentlemen. Thanks for taking my questions. Actually, I've got 3. First one is on Piping Systems.
I've read through your half year report, but could you provide a little bit more granularity on the demand dynamics that you've seen in your 3 customer segments, Utilities, Industry, Building Technology by geography? And also not only ex post talk about H1, but also about your outlook for these customer industries in the second half. That will be very helpful. Then my second question is on casting solutions. I understand that your capacity utilization rates were down in some plants.
Could you give us some averages across the cost and solutions network for H1 and what you believe the utilization rates will be in H2? And then sorry, just to come back to the Mills River plant in the U. S. For GF Linamar, these ramp up costs, am I right that these were higher than expected? And if you could provide some guidance on that, that would be very helpful.
And my third question is on the outlook for 2020. With regards to the margin drivers, You've talked a little bit about the sales drivers for the sorry, for H2 2019, not 2020. You've talked about the sales assumptions going forward. But could you also talk about the margin drivers that you see and also what you expect in terms of networking capital developments? Yes, that will be my first three questions and I'll go back in line for the next two.
All right. Thank you very much, Mr. Flippe Beaker. Very good questions. First one, Piping Systems, a little bit more granularity on their markets and business segments.
I will start with Americas. All three business segments, industry or actually all 2 because we are not there in the Building Technologies, Industry and Utilities have been up in Americas. And we're going to see for the second half even more projects in the industrial field coming up in Americas. So that's Piping Systems in Americas. Piping Systems in Europe experienced a very strong first half.
I think we had in all three business segments growth and we have achieved all over Europe a growth of approximately 5% plus in the first half. And we see the momentum to be continued in the second half of twenty nineteen. Whereas in China, we have seen in the business segments, Building Technology and Utilities drop, whereas the severe drop was in the Utilities segment, which is coming along with this coal to gas project as well in the Beijing metropolitan area. We have seen billing technology was slightly subdued, but flattish industrial. And we assume that we will see somehow slight recovery at least in the utility business due to the recently announced projects by the government.
So that's Piping Systems in the second half of the year in Asia. And since we had a rather modest or moderate second half twenty eighteen, we assume that we can make up this organic growth as we have said earlier during this call. Coming to Casting Solutions. As said, base effects will amplify the growth in Americas since we haven't been there in the last year. We're going to phase in this project.
As said, we do not expect any disruption in the second half of the year. In Europe, we are still missing catalysts why the market should recover. So we guide also on the second half here in the casting solutions markets on the same low level as in the first half of the year. And in Asia, we assume that at least the figures we have seen currently will not worsen further. We have seen, in our opinion, the peak there.
With the EVs coming on stream, we also may going to see a very slight recovery in Asia on this market. Coming to Machine Tools, Machining Solutions, they had a very strong Americas, whereas in the first half we have seen growth and predominantly in the fields of Medtech Products and Aerospace Products, whereas Europe has been rather flattish. And in Asia, we have, as said by Mats Johansson, a drop of 31%, which was mainly due to the lackluster demand of ICT components. And therefore, no catalyst being given in that market that investments could have driven machine tool sales. We see the second half of the year may still be subdued, but we have seen in all figures at least the bottom.
And we assume there could be some catalyst such as 5 gs coming alive, which could give some positive momentum in these markets. Whether that will happen in the second half or in the year 2020, that's something which we can't comment on right now. But we believe, yes, there is some good opportunities. Coming to the utilization of our facilities. The utilization of our facilities, as said earlier, have been heavily affected by this sudden market drop.
And we do not expect that the utilization should come up in the second half of the year since we believe that sales remain on the same level in the first half year. And that means that we are in the range of 65% to 75% utilization in these facilities at this point
of time.
The Meltzer River plant, the ramp up cost, as said, we have been luckily acquiring good orders and also expansions for our orders. So we are currently facing in more products than initially anticipated. That comes along with some more ramp up costs that may have been foreseen at the very late of 2018, but whether it's all within our planning. I will hand over now to this capital development, networking capital development and
to materials. The net working capital, we have a situation where the accounts receivable are developing very positively. Where all 3 divisions have the possibility for improvement is in the area of inventory. And we expect towards the end of the year what we call a normal seasonal improvement in these levels so that we should have a positive development towards the close of 2019.
Mr. Flutiger, did we answer your questions? Thank you very much. Thank you.
The next question from the phone comes from Armin Reisberger with ZKB. Please go ahead.
Yes. Hello, gentlemen. Almost all my questions were answered. Just one remaining regarding this Herzogenburg plant. Did I understand correctly that you will have say you will lose sales of only €8,000,000 by closing this plant and or I mean selling this plant.
And you must be very sure that you will sell it. So you have a partner there already and everything is almost fixed already, all the contracts, I mean.
Thank you, Mr. Resberger. I will give you the answers. Sales of this facility amount to €80,000,000 not 8, CHF 80,000,000. And we are currently investigating in different scenarios.
And we are will come up with the information as soon as the deal will be signed. Currently, we are evaluating various alternatives.
But you strongly assume the sales in second half year twenty nineteen?
At this point of time, we plan to sell this site in 2019.
Thank you.
The next question comes from Christian Hopps with Baader Helvea. Please go ahead.
Yes, good morning. I have 2 additional questions. One is on the Piping Systems. So you reported a very strong EBIT margin, I would say, in the first half of twenty nineteen. Maybe you can talk a little bit about the main drivers here and what you expect going forward and what kind of margin level can you constantly achieve in that Piping Systems area?
I know you have some kind of guidance there out there. And last one is on the ramp up cost of the $8,000,000 in the first half. You stated that you have more orders and therefore higher ramp up costs. What can we expect for the ramp up costs going forward? And when will they go down to 0?
Will that be in the second half this year? Or will this last into 2020?
Thank you. Thank you very much. Very good questions. The strong EBIT margin of our Piping Systems business is mainly driven by higher value businesses. So we are focusing on solutions.
We are constantly enhancing our products. You may have seen innovations we have recently launched such as our CoolFit Piping Systems, which is a pre insulated piping system optimizing installation times and providing values in terms of energy consumption. That's particularly one of the products which is going to drive the higher margin and that's one of the key reasons. But in addition, obviously, with the good load of all our facilities in Europe and Americas. The second question is about the ramp up costs in Melrose River.
We foresee less ramp up costs in the second half of this year. So we assume that overall costs will be below previous year. So we assume that we will see another €3,000,000 to €5,000,000 ramp up costs in the second half twenty nineteen. It may have to be mentioned that we will phase in new products until the year 2021 or actually even beyond that date. And whenever you phase in that product, that comes along with ramp up costs.
But we believe that the business volume we're going to achieve in next year will be accommodate and compensate this ramp up cost and so we can deliver profitable results in the years after. I hope we answered this question.
Yes, I have an additional one on the margin in Piping Systems. So having in mind that you have strong order book also in Piping Systems and you are changing the mix going forward, this means you have a high utilization rate and you change the mix towards the systems. Can we expect that we will see an ongoing margin level well above 12% going forward?
Our initial guidance was 10% to 12%. And we are seeing currently very prospering situations. And we're going to rework our strategy 2020 in the upcoming year, and then we will see what we will come up in the strategy 2025.
Okay. Thank you very much.
We have a follow-up question from Mr. Flueckinger from Kepler Cheuvreux. Please go ahead, sir.
Yes, thanks for taking my follow-up questions. Just firstly, sorry, to come back to the River Mills question asked just a few minutes or a minute ago. Incrementally 2019 versus 2018, what is going to be the incremental cost burden? And what is going to be the incremental cost relief for 2020? That would be my first question.
2nd question is on your restructuring costs. So I think Slide 22 provides an outlook here. And I realize $14,000,000 incurred in H1 2019 is an impairment I. E. Non cash.
But for the guidance in H2 2020 for that €34,000,000 17,000,000 euros I realize you've given the cash flow impact, but I'm wondering how much of that €34,000,000,000 that €17,000,000 euros is cash and how much is non cash, I. E. Are we going to see further impairments there? And then the third question would be if you could provide a split for your organic growth or organic decline in H1 with regards to pricing and volume? And also in that respect, if you could provide a number for the net divestment impact.
I believe there were some smaller acquisitions, if you could comment on that as well, please. Thanks.
All right. Thank you, Mr. Flukegun. The Nords River will face this year as that ramp up cost in the range of €12,000,000 And we stated that we currently forecast a breakeven situation in the year 20 20. So therefore, the incremental change will be €12,000,000 assuming that we have the €12,000,000 this year.
The question number 2 will be by our CFO.
All right. Thank you, Mr. Flueger. As you correctly stated in the first half, the €14,000,000 are non cash effective value adjustments. In the second half, the CHF34 million that is shown on Slide 22 includes the potential up to €10,000,000 book loss that we could have on a disposal of the Heptogenburg plant.
In the second half, we expect that there should be only CHF 6,000,000 cash effective out of the 24,000,000 relating to Radon. And then in the following years, we will see the cash effects coming in, meaning that in 2020, the majority of this will be cash effective as well.
Coming to your last question, number 3, the volume and pricing effect. Pricing effects can be neglected in the first half year twenty nineteen, as also mentioned by Bjergsen, since we had a couple of raw material prices going down and that has been passed on to customers. So overall pricing effects can be neglected. So what you see as an organic development is mostly the volume organic takes. Did we answer your question?
Let me just double check, sorry. Yes, the net divestment impact and whether there were any smaller acquisitions, I think I've seen some CHF 3,000,000. If you could just, one sentence, explain what that was?
I think, Mr. Kamsmer, I think you're referring to the cash flow statement. Is that correct?
Correct.
Yes. That is actually a payment of an earn out to a previous acquisition we did for the company, Microlusion, as well as a minority, a very small stake in the company, a last remaining shares of a company, Steptec. Those are very small deferred payments that we have in our deals.
So the net divestment impact plus Presi cost a little bit, I think, in Q1 and then minus the 2 iron foundries sold in Europe. How much was that exactly in 1,000,000 or in percentage terms?
The divestment of the iron krafting facilities in Germany amounted to CHF 352,000,000 as illustrated on our chart.
That's for the full year, yes?
Now that's a half year, that's the 1st 6 months.
I'm sorry.
Yes, it's a half year comparison. It's not full year versus a half year comparison. So we have the CHF 352,000,000 which is divestment for 6 months of the year 2018 of the 2 casting facilities. And we had a positive impact of the 1st 3 months of our pressure cast companies of EUR 28,000,000, which has been the 1st quarter since we have consolidated pressure cars for the first time
with the
1st April 2018 onwards. Perfect. Thank you very much. We
have another follow-up question from Mr. Ifard with UBS. Please go ahead.
Thank you. It's just a question on the 2 production sites you divested in December. Is there a risk for Georg Fischer shareholders that there must be a cash injection in terms of restructuring you see there? What is your view here?
Thank you very much, Mr. Hayford. Very good questions. And we can confirm that the companies are doing within their plans. So they have a very solid cash generation in the 1st 6 months of 2019 according to our plans, which we have done last year.
So we are confident that there are no risks at this point of time for our shareholders.
And may I ask in case there would be a more tougher market environment in 2020, 2021, would you then support the 2 plans with cash injections? Or do you say, no, that's really it's divested, that's done, just that we have a feeling for cash allocation?
We will not speculate about the business development of these companies. At this point of time, the Fondueum companies are good on the way. They have also acquired new orders in various fields and have increased prices. So they have exactly demonstrated the flexibility as we have anticipated when we have divested this company. And you may going to have to turn this question to Fondio.
From this point of time, at this time, we see a very robust development of their
cash flow and we are not concerned.
Thank you.
All right. Thank you.
There are no more questions at this time.
Thank you very much and we're going to close the call and see you at the Capital Markets Day in September.
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.