Ladies and gentlemen, welcome to the Analyst Conference 2019. The following presentation will be held by our CEO, Yves Serra and our CFO, Andreas Muller. First, Yves will comment on the growth of the business of the year 2018 and Andreas will comment or give further details to the financial statements, followed by an outlook 2019 from Yves. Presentation will be recorded. So therefore, please make use of the microphones.
After the presentations, you are or we are pleased to answer your questions. Also there, please take the microphone so that everybody in the Internet can clearly hear you. You will find a recall of the presentation in or on our website as of tomorrow. After the conference, you are invited for an offer outside in the Foyer. With this said, we will start the conference.
Yves, the floor is yours. Thank
you, Danny. Well, ladies and gentlemen, welcome to annual conference. We are happy, Slide 2, to present results for 2018, which despite markets, currency and political adverse effects in the second half year show a clear increase compared to previous year, both on top and bottom lines and are well in line with our 2020 strategy goals. The top line of our company increased by 10% to CHF 4,572,000,000, Free of acquisitions, divestments and currency effects, growth amounted to 7% with America showing the highest growth rate. The operating result is up 9% to CHF382,000,000 and earnings per share 11%, increasing from CHF 62 to CHF 69 a share.
Based on the above, the Board of Directors will propose a dividend increase of CHF2 per share to CHF25 at the upcoming shareholders meeting of April 17. 2018 was also Slide 3, a year of strategic transformation. We changed the name of the division, GF Automotive, to GF Casting Solutions. We bought into aerospace castings. And as announced early December last year, we divested 2 large German iron casting plants, all this in line with our 2020 strategic thrust, that is the reshaping of our portfolio towards higher value businesses.
All three divisions, Slide 4, grew significantly. As you can see on the slide, which shows the organic growth rate, GF Piping Systems did grow the most with 8%, followed by GF Casting Solutions and GF Machine Solutions, each growing by 5% organically. As such, all three divisions did outgrow their 3% to 5% organic growth objectives. Regarding profitability, as measured by the EBIT margin or ROS, Slide 5, GF overall reached 8.4%, slightly lower than 8.5% of previous year, but well in line with our 8% to 9% objective range. The largest division, Jeff Piping Systems, substantially increased its profitability from 11.3% to 11.9%, and Jeff Casting Solutions kept the same high level of 8.3%.
But Casting Solutions, on the other hand, saw its return on sales decreased from 6.3% to 5.1%. I will come back to the reasons. The ROIC, Slide 6, further increased to 22.4% against 20.3% in 2017, thus slightly surpassing our 18% to 22% objective range. All three divisions did again generate a high amount of value well above their cost of capital. GF Piping Systems and GF Machining Solutions had an ROIC over 27% and GF Casting Solutions reached 16%.
Now the 8th year in a row that all three divisions from GF generated value for our shareholders. Looking now at the 3 divisions and starting with GF Piping Systems, Slide 7. Sales were up 9% to CHF1.821 billion, organically 8%. The division enjoyed a sustained demand in its industry and utility sectors worldwide, which grew double digits. All segments and geographies contributed to the high growth of the division with America growing the most.
In the picture, you can see an example of a desalination plant, certainly a growing business in countries where water is scarce and for which all products of GF Piping Systems are used, sensors, valves, fittings, pipes and where we even pre assemble skids for our was up 15% to a €217,000,000 as all plants were well loaded and the higher share of high value products contributed to the margin increase. Looking forward, Slide 8. GF Piping Systems has developed a whole line of digital smart valves to facilitate remote calibration, monitoring and control at left of the slide. Moreover, the division has entered promising new market segments such as the cooling of data centers. Those will no doubt support sales growth at the division in 2019 and beyond.
Turning to GS Casting Solutions, Slide 9. Division had a strong year regarding order intake, especially for electric and hybrid car components, which accounted for about 30% of the long term orders of the division. The example on the slide is the aluminum housing of the electric motor of the recently launched Audi E Tron. Sales were up 14% to CHF1.687 billion, organically 5%. The difference has mainly to do with the acquisition of Precast in April 2018.
The operating result, the EBIT stood at CHF 86,000,000, down from CHF 93,000,000 in 2017. The main negative effects was the ramp up of the new light metal plant in the U. S, which started in August, started production in August 2018 and impacted the division's EBIT by about CHF16 1,000,000. Also at year end, call offs from several car manufacturers went down, partly due to the newly enforced emission registration test, the so called WLTP, the World Light Duty Vehicle Harmonized Testing Procedure. Major steps have been taken during 2018, Slide 10, to reshape the portfolio of GF Casting Solutions.
We acquired in April 2018 Precicast, the well known specialist of precision castings for aircraft engines and industrial gas turbines. And in December, we divested 2 large iron casting plants in Metman and Singen in Germany. This is in line with our strategy to shift our portfolio towards higher margin businesses. Accordingly, the profitability objective of the division for the current 2020 strategy period has been increased by 200 basis points, with an 8% to 10% range for the return on sales. For GF Machine Solutions, Slide 11, I think the well balanced presence worldwide of the division did support its profitable growth.
They had high growth in the aerospace and medical sectors, especially in the U. S, which compensated the slowdown in China related to trade tension concerns. The example on the slide shows a typical aircraft engine components called the fir tree, made with our specially dedicated wire cut machines developed together with our customers in this sector. Sales were up 8% to CHF 1,066,000,000 for an organic growth of 5%. The operating result itself increased by 7% to CHF 88,000,000.
In September 2018, Slide 12, GS Machine Solutions entered into a partnership with the company's 3 d Systems of the U. S. To offer new integrated and automated 3 d printing lines to its customers, including the automated change of powder chambers without operators handling as well as dedicated wire cut EDM to efficiently and precisely detach the 3 d printing components from their support. On the picture, you can see fuel injection nozzles for industrial gas turbines produced with these 3 d printing machines. These products will be shown on the next AMO exhibition in September 2019 with sales already starting this year.
I now yield the microphone to our CFO, Andreas Muller, for a closer look at the 2018 figures.
Thank you, Yves. Ladies and gentlemen, welcome also from my side. 2018 financial statements reflect a solid and profitable development of GF. It is once more a pleasure to present the figures of last year. On Slide 14, we see the sales per division.
All three divisions contributed to a solid growth of GF. Sales went up by more than €400,000,000 to €4,570,000,000 corresponding to an increase of 10 0.2 percent, previous year 10.8 percent. The organic growth rate came in at 6.5%. GF shows the highest growth in Americas with 19%, followed by Europe with 11%. After a strong first half year in Asia, the Chinese market softened in the second half, resulting in a growth in the region of 7%.
GF Piping Systems increased sales by £143,000,000 to €1,820,000,000 Acquisitions counterbalanced negative currency effect. The product portfolio expansion at the division Casting Solutions into Aerospace and Energy Products contributed 5 percentage points to the growth of overall 13.8%. Sales came in at €1,680,000,000 euros By eliminating the effect of the stronger Europe as well as acquisitions and divestments, the organic growth amounts to 5.2%. GF Machining Solutions increased sales by €74,000,000 corresponding to a growth of 7.5%. Organic growth came in at 5.4 The American market showed the largest increase of 14%, followed by a strong Europe with 10%, whereas after a strong first half year in Asia, the last month came in at a lower level, resulting in an annual growth of 2% in the region for this division.
The 1st semester on the bottom, growth rate came in at the level of the second half year twenty seventeen. However, trade tensions between America and China worsened in the second half of the year and consequently negatively affected the markets with China the most. Combined with the normal seasonal effect, growth came in at only 0.8%, organically 1.4% in the 2nd semester of the year. The metal price impact, as shown on the bottom of Slide 15, had a positive impact on sales of 80 basis points on the corporation. The division, Casting Solutions, faced metal price increases between 5% for aluminum and 10% for iron scrap during the year under review.
As a result, the division sales were positively affected by 2 percentage points. However, main metal prices came down in the last months of 2018. Slide 16 shows the EBIT and operating profit margin per division. Geared Piping Systems increased its EBIT by €28,000,000 to a strong €217,000,000 The growth of 15% resulted in an EBIT margin of 11.9% compared to 11.3% in 2017. Today, the division contributes 57% to the consolidated result.
GF Casting Solutions had to face ramp up costs of £16,000,000 previous year £6,000,000 which were 100% consolidated for its new joint venture facility in North Carolina. The 2 divested iron casting facilities did not contribute to the division's EBIT in the year under review. Overall, the EBIT went down by $7,000,000 to $86,000,000 The margin came in at 5.1%. GF Machining Solutions sustained its operating profit margin of 8.3% from last year. EBIT increased by €6,000,000 to €88,000,000 with sales remaining on the same level as the 1st 6 months of the year.
Newly launched products nicely contributed to the good margin development in the 2nd semester 2018. The EBIT of the corporation came in €30,000,000 above last year at $382,000,000 with an EBIT margin of 8.4%. In 2017, the second half year was clearly stronger than the 1st semester, whereas we see the opposite picture in 2018. The 2nd semester 2018 was marked by lower sales and strong currency headwind in the amount of 12,000,000 dollars reflecting an impact on the EBIT margin of more than 40 basis points, resulting in a reduced EBIT and operating profit margin. As shown on Slide 17, our exchange rates turned from tailwinds in the 1st semester to headwinds in the second half of twenty eighteen.
The strong appreciation of the euro in the 1st 6 months flattened in the second half of the year and even negatively impacted sales. The same effect can be seen for the Chinese renminbi and the strong devaluation of the Turkish lira left its substantial traces on sales predominantly in the second half of the year in our division Piping Systems. For these reasons, the positive impact of €97,000,000 for the 1st 6 months was reduced by €39,000,000 in the second semester to an annual effect on sales of €58,000,000 Whereas in the first half year, the currencies positively contributed with €6,000,000 to our results, in the second half year, we had to cope with an adverse effect of €12,000,000 citing a negative impact of €6,000,000 on EBIT for the year. Raw material On Slide 18, we have outlined the currency impact per division. GF Piping Systems sales were influenced by the strong devaluation of the Turkish lira, which counterbalanced the positive development of the U.
S. Dollar, euro and Chinese renminbi. In addition, the Turkish lira caused a strong negative impact on EBIT. GF Casting Solutions and GF Machining Solutions sales were boosted by the stronger euro. The effect on the result can be neglected.
On Slide 19, we have outlined the consolidated income statement. Sales reached €4,570,000,000 for growth of 10%. Cross value added increased by 8% to €1,668,000,000 This is basically in line with the real volume growth of the corporation after deducting raw material, metal and currency effects. Personal expenses increased by 9% to €1,140,000,000 A good portion of this rise is due to ordinary salary and workforce increases, whereas acquisitions and divestments account for 3 percentage points and accounting impacts amount to 1.3%. EBITDA went up to €529,000,000 for growth of 8%.
Increased depreciations came in at 100 and £147,000,000 and were caused by higher capital expenditures and acquisitions in the previous years. The financial result was driven by an overlay of the refinanced bond in September and increased hedging costs for the U. S. Dollar. The income tax remained once more stable on a reasonable level of 20%.
Net profit after minorities increased by 12% to €281,000,000 slightly above the net profit of €279,000,000 This unusual situation was caused by the negative minority interest due to the ramp up costs of the Casting Solutions joint venture in North Carolina. On Slide 20, we see the assets of our consolidated balance sheet. Lower year end and currency spot rates reduced our assets by approximately $120,000,000 Acquisitions and divestments diminished total assets by approximately $325,000,000 Ordinary increases net of dividend payments of the year amount to approximately 230,000,000 The vendor loan of €62,000,000 out of the divestment of the 2 iron casting companies is reported under other financial assets. Overall, we had €3,440,000,000 of assets. Slide 21 shows the liability and equity section of the divestment, the new bond and the acquisition of the investment casting company, PressureCast.
The new bond of €200,000,000 with a majority of 10 years and a coupon of 105%, replaced a bond of €150,000,000 which was due in September. The divested 2 iron casting facilities reduced the liabilities in the amount of £267,000,000 whereof £151,000,000 were interest bearing and pension obligations. The equity increased by $59,000,000 to a strong equity ratio of 41.5%. The goodwill from acquisitions of $73,000,000 has been offset against our equity with immediate effect. As for last year, we can once more present a strong and solid financial structure.
Let me guide you through our cash flow statement on Slide 22. Net working capital went up by €77,000,000 net of acquisitions, divestments and currencies, equally shared between inventory, accounts receivable and accounts payable effects, caused by the ramp up for our new facility in North Carolina and stronger seasonal negative impact on accounts payables in the 4th quarter. These are the main drivers for a slight reduction of the operating cash flow despite an increased EBITDA. Capital expenditures peaked to €234,000,000 in the year under review, In addition to our ordinary investments, the new casting facility in North Carolina and the new building in Beale for milling activities has to be highlighted as the main driver. Acquisition outlays came in at €154,000,000 primarily for the investment casting acquisition, Fresh Cast in Switzerland.
The divestment of the 2 iron casting facilities in Germany was cash neutral. Free cash flow before acquisitions amounted to $147,000,000 basically at the lower target range of our guidance. On Slide 23, we display the major acquisitions investments of 2018. On the left, you see the progress of our new milling center in Weil. The overall investment end of 2018 amounted to €79,000,000 therefore, €43,000,000 in the year under review.
The inauguration is scheduled for autumn 20 19, where also our Capital Market Day will take place. In the top middle, you see an illustration of the new headquarter and training center of GF Piping Systems in Schaffhausen. The training center hosts more than 6,000 customer visits and trainings annually. Overall, GF is investing €25,000,000 in new workplaces and training facilities. The investments summed up in the year under review amounted to €7,000,000 euros On bottom middle, you see the new light metal facility in North Carolina.
Overall investment until 2018 amounted to €94,000,000 In 2018, the capital expenditures amounted to €35,000,000 And on the right hand side, you see a part of the production process at GF Precicast, our promising entrance to aerospace and energy industry at GF Casting Solutions. The company was acquired in April 2018. Please allow me to summarize on Slide 24 a few important key figures. Net debt increased by €55,000,000 to €238,000,000 The outlays for acquisitions are the main reasons for this development. However, the net debt EBITDA multiple remained on the same good level as last year.
As a consequence of the strong development of earnings per share from CHF62 to CHF69, our Board will propose a dividend of CHF25 per share. This reflects an increase of 9% and a payout ratio of 36%. Headcount dropped by 808 people. Main impact, the recent divestment, which reduced the headcount by 1920 4 people. 8 12 people employees joined CHF through the acquired investment casting company.
Ordinary headcount increases were 304 out of 100 for our Mills River new casting facility, North Carolina. As we said in December, media conference, we will share with you all the details of the transaction of the divestment of the 2 German iron casting facilities. Slide 26 shows the turnover split of KEF Casting Solutions and illustrates the strategic portfolio changes within the division. This transaction means a significant This transaction means a significant reshaping of its portfolio towards more promising technologies. You can see on the slide the divested iron casting activities accounted for 37% in 2018, equaling to CHF617 1,000,000.
These divested companies did not contribute to the division's EBIT. Post transaction, 56% of the turnover goes to the light metal automotive castings, for which we announced large orders last year. Aerospace, Energy and Industrial Applications will sum up to approximately 24%. The lion share of the remaining 20 percent automotive iron castings stands for the division's Chinese operation. Slide 27 displays the transactional details of the 2 European Iron Casting Plants divestment.
The companies were deconsolidated effective December 1, 2018. The sale included the operations and production equipment in Singen and Bettman. Since GF remains the owner of the real estate in the value of approximately CHF 50,000,000, these assets have been reclassified as non operating investment properties. The purchase price of €62,000,000 was the result of a fair valuation corresponding to an enterprise value of approximately €225,000,000 This corresponds to an EBITDA multiple in the range of 6.5 to 7. The granted vendor loan amounts to CHF62 1,000,000 and is expected to be repaid within the next 5 years.
The interest rate will increase from 3% to 4% with the beginning of the 3rd year and finally reach 5% for the last year. The transaction was profit and cash neutral. With that, I conclude my presentation and hand over to Yves for the
Well, looking first, Slide 28, are the consequences for the GF Corporation of the portfolio reshaping of GF Casting Solutions. The return on sales objective of the GF Corporation is being increased by 100 basis points to the 9% to 10% range and return on invested capital by 200 basis points to the 20% to 24% range. This increase is on one hand a consequence of raising GF Casting Solutions profitability objectives. Also Slide 29, because as of 2019, the weight of the most profitable division, GF Piping Systems, has substantially increased from 40% of total sales before the divestments of the plants of Singh and Mittman to 46% post transaction. You can see the pro form a sales for 2018 of the new corporate structure would have amounted to about CHF3 point 98,000,000,000 as compared to the reported CHF 4,570,000,000 for the year 2018.
As you also can see on the slide, the exposure of the GF Corporation to the automotive industry has been substantially reduced from about 1 third of its sales pre transaction to 1 5th post transaction. As a consequence of the divestments of the 2 iron foundries in Europe, Slide 30, GF signed itself also with a better balanced worldwide sales split. Whereas Europe accounted in 2018 for our 55% of GF sales, This post transaction reduced to 47%, with the share of Asia growing from 25% to 29% and Data America from 15% to 18%. Now what are we expecting for 2019? Slide 32.
Well, it may well be that the 1st semester of 2019 will be weaker than the very first strong semester of 2018. Market uncertainty is higher. The automotive industry is at least momentarily in a slowdown, and customer sentiment in China remains affected by trade tension concerns. Top it all, currency tailwinds turn into headwinds. On the other hand, new products, new market segments should help GF Piping Systems to sustain its growth momentum.
GF Casting Solutions starts 2019 with a reshaped portfolio, which all things being equal will lead to higher profitability. And at GF Machining Solutions, the demand worldwide for automation solutions remains very strong and new technologies such as those presented earlier should help support growth. Therefore, chances are intact, Slide 33, during the 2nd semester of 2019 to make up for a possible shortfall in the 1st semester. More so as the base for comparison in the second half with the second half twenty eighteen is clearly lower as the 1st semester 2018. Moreover, the wide presence of the GF in growing sectors like aerospace as well as the launch of attractive new products such as digitalized valves will support sales going forward.
Overall, we're confident for the full year 2019 to grow at least on an organic basis and reach profitability figures in line with our revised 2020 targets. Ladies and gentlemen, let me at the end summarize actual positioning of GF as of 2019. I think 2018 was a successful year with results well in line with our targets, but also a year of strategic transformation. CIES is not immune to recessions, but our company has a strong and solid financial structure, has a well balanced global presence and is well positioned in markets with secular growth characteristics and driven by sustainability requirements. The water sector at GF Piping Systems, cars and aircraft engine efficiency at GF Casting Solutions as well as the miniaturization of components and production automation at GF Machining Solutions.
Moreover, the weight of its most profitable and most stable division, GF Piping Systems, has been step by step increased to now reach almost 50% of the corporation sales. By the way, you're all invited, as Andy mentioned, for our Capital Market Day of 20 of the 25th September 2019, while the new management of GF will expand on those teams. With that, I would like to conclude our presentation. We're now ready for your questions.
Thank you. Tobias Arnold from MainFirst. Three questions, if I may. First, on metal prices, could you remind me on the margin impact you've seen here in 2018? And also assuming stable prices or in the meantime, a bit lower prices, what the positive impact could maybe be for 2019?
The first one. Then second on deal with all with regard to these combination of the production facilities, what kind of annual savings do you currently for see there given the higher productivity? And last but not least, on M and A, could you remind us what is left out of your 2020 strategy program? How much M and A you could still do? And how do you see the chances to reach this level?
Okay. Maybe I will answer the third question, and I think I'll see if Juan and Imola will answer the 2 first ones. On the M and A side, while we have told you already 1 year ago, 2 years ago that we want to increase our presence in the aerospace industry. So if we can make more acquisitions in this area, we'll do. Also, at Jet Piping Systems, basically acquisitions in countries where we're not really present and acquisitions in sectors like now digitalization, sensors would, of course, be welcome.
In our GF Mashing Solutions, basically if we can, let's say, acquire a company to complete the portfolio, that would be, of course, welcome now to the acquisitions. 1 has to be 2 tango, right? So, but basically, it does not change. 1st priority, Jeff Piping Systems. And then, if we have good acquisition, possibilities in the 2 other divisions, of course.
We'll try to do them.
The most important impact on our margins is obviously through the divestment of the 2 iron casting facilities, as we have said, €617,000,000 of sales without any EBIT contribution. Also the division accounts for the major dilution whenever metal prices increase, so seventy basis points have been the impact on the Casting Solutions division last year. But we see the raw material price increases normally in the range between 1% to 2%. It depends a little bit what kind we look in the various divisions, which we normally can also pass on to our customers. Coming to the second question, Peel, we expect annual savings in the year 2020 in the range of €3,000,000 to €5,000,000 We do not expect any impact in the year 2019.
Alessandro Foletti of Paveen. I have two questions regarding your outlook. You said you expect organic growth in 2019 19 and you didn't make specific number for 2019, but you said we've seen the strategy. So I would imagine 3% to 5%. Can you give a bit of a split by division with maybe a particular note on machining because backlog is going down and also book to bill was negative in H2?
That's the first question. And the second question on the margin outlook. If I make a very simple calculation, I take €1,700,000,000 turnover at €88,000,000 EBIT, add back €16,000,000 one off, I get to about €100,000,000 take the 620,000,000 away, I get to 9.5 percent margin. So it is actually 350 basis point improvement and not 200 basis points as you said. So what am I missing here?
Okay. Well, thank you very much. Start to answer the first question about organic growth, the backlog and I think Andy can answer the margin outlook. Well, basically, we see that the momentum at Jet piping system, you have seen in our figures, even in second half was not too bad, right? We grew 6% in second half organically at Piping Systems.
So I think for Piping Systems, we didn't see why we should not grow in 2019. Now Piping Systems account for almost 50% of our sales, right? Regarding the 2 other divisions, it's interesting to go into details because we have had last year sales without the 2 divested companies of about $1,000,000,000 right? But order intake was $1,500,000,000 We didn't see it on the figures because we announced what is called in Germany the ABOFE, the Colos. We didn't announce the global order intake because it's too dependent on the future.
The amount of orders we got last year was much higher than the amount of sales. It's very promising and especially in America and in Asia. And this is mainly for because there is a trend towards light vehicle components and also because for the electric and hybrid cars, particularly the same lightness is welcomed by customers because of the so called high fighting, right? Range, right? So I think for our Casting Solutions, it's a bit misleading, right?
That's okay. For Machining Solutions, what happened last year, we had a strong order intake in America, very strong, and especially in the Aerospace business, but also in the medical. The order intake in Europe was also very strong, where we had in the last 6 months a reduction was in China, not in Asia, in China. The ratio in China was clear as of July due to the uncertainty in the customers' minds about the straight tensions with the U. S.
Now whether it will continue or not this year, no one knows, right? At least we don't know, but that was the main reason. And so the backlog at the end of the year of GF Machine Solution was slower, right? Now January started quite well at GF Mashing Solutions, especially in the U. S.
So we need to all put together. As you mentioned, I think we believe that this year we can grow. By how much is difficult to say. I think my successor will be a bit more intelligent in July about this, right? But I think that the chances are intact to grow this year.
Probably, as we have seen, right, the currency effects last year were very positive in the first half and quite negative in the second half. Though we would have also to be mentally adjust our, let's say, too good 1st semester, right, and maybe too bad 2nd semester by, I would say, a few percentage points on its side, right, in order to have a clear picture. So I think that if we look at 2019, chances are that the 1st semester may be a bit weaker and chances are the 2nd semester should be a bit stronger. That's the reason why we mentioned this point. Now backlog, mentioned right at the same time.
Margin outlook, maybe in general and Andy will answer in details, right. I think the Jeff Casing Solutions starts with a much different, let's say, portfolio. And there are 2 points which influence the margin. 1, we don't have any more in 2019, the 2 plants, which in 2018 are the negative impact on the return on sales, right? I see $600,000,000 didn't bring anything.
And also in 2019, we should get much less losses in the U. S. Regarding the new plants that we started in August 20. So these two factors combined in our view to justify the increase of profitability at this division by 200 basis points. And the 3rd point, if you look at the overall picture that we have now the weight of the most profitable division, GF Piping System, which is much higher, which mathematically increases profitability at GF overall.
Did I answer all the questions?
I think I may add one thing. Go ahead,
go ahead.
The Mills River facility, as you made it in your calculation, waiving away the whole loss, that's unrealistic. We still expect a loss in the year 2019 may not definitely not in the range as we have seen in last year. Secondly, it's important to mention that the previous strategic corridor for the return on sales was 6% to 8% in that division, and we have increased that to 8% to 10%. And the starting point obviously is not 6%, the starting point is 5.1%. So, if you should calculation to reaching the corridor of 8%, that is, in our opinion, clearly the right stretch of the target.
Thanks for taking my question. Martin Flueckiger, Kepler Cheuvreux. Actually, I've got 3 and I'll take one at a time. Starting off with Piping Systems demand dynamics expected for 2019, I heard your elaborations, but I was wondering whether you could be a little bit more specific on the individual customer segments, I. E.
The industry segment maybe to start off with, if I remember correctly, last year and particularly 2017, you had a nice boost from the U. S. Shale oil and gas industry for Piping Systems in that region. That's the first driver that I would like you to highlight. And secondly, if I remember correctly, China, the utility sector, the switch from coal to gas heating was also an important driver.
How have these trends developed over the last few months? And what do you expect for 2019?
Two questions. That's my first question. Oh, first question, sorry. We'll answer the first question first, okay? Please.
Thank you. All right. So dynamics of Piping Systems, last year, what did we see? We saw that the U. S.
Grew over proportionally. It was the first time that America actually grew much more than Asia or Europe, right, since many years. I don't know if it's thanks to new presidents, but that's what we saw, including, by the way, the use of gas. There's a lot of shale gas in the U. S, which is available and for which a lot of investments are going on, right, to use the gas.
And I think we are lucky enough to be well positioned in the U. S. In that business at least last year, right? Regarding the industrial segments, basically, they have to do with water treatments, with the transport of chemicals, as you saw, the desalination plants and so on. This is a quite a stable business.
It grows more than the GDP, right? And so every year, maybe 4% to 6%. So this we don't see why it should be different in 2019, right? I mean, the need for water increase in these wells course, it will not grow linearly every year, but basically, it's a secular growth by water. So regarding the other segments, Building Technology, for example, there we didn't grow as much as the industry or utility last year, let alone because we are mainly in Germany, in Switzerland, in Turkey and in China, right?
So we grew in some countries and grew a bit less in the others, but overall, we grew. So where we didn't grow last year was mainly in gas in China. In gas in China, we grew outside of Beijing, but not in Beijing. It's a bit funny, right? But the reason is there is not enough gas.
And also, maybe you have seen that the region had to rely on coal a bit more because people were freezing during winter. So that's reversed a bit temporarily at least to use the use of coal. So it just delayed in our view. But what happened last year, that in the gas business in China, it was more stagnant than the previous year. Otherwise, even in China in the last year, in the industrial applications, we grew quite well.
Yes. Thanks. My second question would be to your metal prices in GF Casting Solutions. Now I realize Andreas' statement about normally compensating higher metal prices on an annual basis. Was that also the case in 2018?
And is that your expectation for 2019? Because judging from the recent changes in prices, at least market prices for aluminum, steel and so on, one would assume that customers are starting to ask for renegotiations. Is that the case?
I'll answer basically quickly, and I think Andy will give you a more precise figures. But basically, our contract with customers allow for a compensation, automatic compensation of the increase of metal prices. There's a delay of 2 to 3 months, right? And therefore, prices go up, we lose a bit of money. When price go down, we gain a bit of money, right, because of the delay of 2, 3 months.
And last year, well, because the price went up, we lost a bit of money, of course, due to that reason.
And since we divested 2 iron casting facilities, which have been the major influences on the income when it comes to this time delays, you do not see a huge impact in the years to come. Aluminum is much more in terms of procurement price levels and how to proceed on process these prices to customers on the same level. So we do not see a major impact on that. And as Yves said, 2018 was pretty much on the level of the year before.
We didn't see customers asking for the renegotiation of contracts on that topic.
Then finally, on Machining Solutions, if I may, Looking at some market intelligence data for European and Chinese demand for machine tools, picture doesn't look rosy, to be honest. What's your outlook? I've heard your statements about the backlog and so on. But if you could elaborate a little bit on your view on the market and how you think that's going to affect you towards the second half? Thank you very much.
Yes. Well, we're affected the last year in the second half by weaker demand in China. That's correct. And China is mainly in the ICT sector, in other words, information and communication technology. It was compensated last year by a very strong demand in the aerospace and medical sector, especially in the U.
S. And in Europe. For 2019, we saw in January, right, I think it started quite well. The same trend, in other words, Aerospace, Medical going still very strong, China on the same level. So basically, we didn't see why it should be a a major change compared to this trend in the next few months.
The backlog increased in January. That's positive, right? Now it remains to be seen whether it will be the same in February March, but the year did not start very badly.
Thank you. Two to three questions, please. The first one is with the divestment of the 2 production sites in Germany, you have a vendor loan you are still having a 20% equity share. What would happen if significant restructuring would be needed or there are liquidity needs in these two production sites? Would you be supportive here?
Do you really consider it a totally separate entity now? 2nd question would be, please, in the Casting Solutions segment, the sales numbers in the automotive industry in your 2 key regions, Europe and And
I
I was surprised to see your bullish statements in the press release this morning about the good order intake and your prospect for 2019. Can you help us to better understand is now George Fisher and Casting Solutions outperforming the auto cycle due to hybrids and electric vehicles or how should we read this? And last question, I know it's a basic one, but not totally unimportant for us. To sum all your answers up on momentum in Machine Solution, Piping and Casting Solutions, is organic growth on group level positive in January and the 1st weeks of February? Sorry, it is.
Is the organic growth in the positive territory? Positive territory. Year to date, yes, on group level. Thanks.
Thank you very much. I will answer the last two questions and then I think Andy can answer the first. Basically, you're right. In January, the statistics show that the production of cars in Europe went down about 7% in China as well, right? Europe, it may have other reasons in China, right?
Probably it's this WLTP, which has an impact especially on those customers which have a lot of models like the Volkswagen Group, right? The others less. And in China, I think it has to do with this so called customer sentiment, right? Oops, what is going on in the future? Whether it will last, we don't know.
What is sure is that in the U. S, we had nothing before. Now we have a lot of orders for new plants. So I see it's a plus, right? In China, we've had a lot of orders and especially for the hybrid and the electric cars, which we didn't have before.
And so it so happens that we start 2019 with a very high portfolio. But the question is whether the models for which we got these orders will be all successful or not because we depend on a month to month basis, not so much from the order intake, which is very good, but from the call offs of customers, right? So I think what is important for us is, of course, to have a lot of orders for the future, but also to see in the next 2, 3 months what the call offs are. And the call offs in January, February, basically, in America, well, since we start from 0 higher, that's clear, right? We believe this year, we should sell about $50,000,000 in America, about okay, this order.
I think in China, I see the market is so big even if there is a reduction in January. I mean, it doesn't impact us too much. I think in Europe, it's a bit different. I think in Europe, the also depending on the production of cars, right? So probably what we will see in the 1st 2 or 3 months is grow in America because we grow from 0, right?
In China as well and in Europe, probably a slight decrease in the 1st 2, 3 months. At least that's how we see it, right? And Europe will depend very much on whether all these models have been yet now registered or not and whether the car industry can start to produce with all these models. The momentum you have asked for the 1st months, I think January was not bad. We've seen in Machine Solutions a high order intake in January.
Piping Systems was continuously at a very strong momentum and Testing Solutions, we just mentioned. The overall, of course, difficult to have crystal ball, but if we put all these ingredients together, in our view, probably the first quarter will be a bit weaker than the Q1 of 2018, right? All things together, probably Piping Systems up, there are 2 division a bit down. 2nd quarter, we should compensate start to compensate, right, unless, of course, the major trade war between China and the U. S.
And all bets are open. Then it will depend very much on whether the currency stays stable as they are today. I think we have a good chance in the second half to compensate the Q1. So that's basically how we see the year developing. Andy, you can answer the vendor loan topic and the 20% equity, that's the first question.
We believe that the new management, which knows the 2 companies very well, is more flexible than a corporation would be to run and lead these companies, which is sometimes also required. But we also believe that they are well structured and we see that they had a good start into the year. Overall, of course, we are exposed to €50,000,000 €62,000,000 In addition, we would give them an emergency line of €10,000,000 net working capital if required. But at this point of time, we do not see the need since the EBITDA performance of these organizations are quite okay and quite strong. And as a corporation, as a target of 6% to 8% return on sales, this new owner may will be happy with a range of 1% to 3%.
Therefore, we do not see at this point of time any concerns.
Okay. Thank you. If I may follow-up on this one, just in case we have a deteriorating truck end market and maximum amount in 1 or 2 years, these two production sites would need €20,000,000 €30,000,000 cash or you have significant restructuring costs of €20,000,000 €30,000,000 Is this now for you a legally separate entity or would you help them?
It's a legally separated entity. And as we said, we do not see at this point of time any reasons as you mentioned them. The companies are well structured. As you may have seen, we have invested in this company. So we haven't sold overaged assets to the new owners.
So therefore, we do not see that scenario at this point of time.
Michal Johar, Fontoobel. I would have two questions. 1 regarding the CapEx for this year, what do you expect? And can you also give us maybe a bit more details where do you want to spend this money? Is it more in the Piping Systems or Casting Solutions or Machining Systems?
And then a second question just regarding the Precicast, how did this business developed as a kind of a standalone business? Did it grow in 2018 or was rather stable? And in terms of margins, was it dilutive or positively impacting the casting solutions?
Thank you very much. I will answer the second question. I think Andy will answer the first. I think Precica is basically for us a stepping stone, as we said when we bought the company, into this aerospace industry. So we don't want to stay with standalone of $120,000,000 right?
Companies doing quite well. They have a bit of an issue or they had a bit of an issue because they were depending more on gas turbines and now they depend more on aircraft engine components, right? Gas turbine is going a bit down, Aircraft engine components up. So they have this phase to, let's say, digest. They have a lot of new orders, which, of course come at the same time, right?
So but I think the future of this company in our view is not only bright unless we do major mistakes. I mean, the market is there. The demand is there. There are not many companies able to do the same. So I think it's a company where we put a lot of management attention now, right, to make sure that they grow, to make sure that we see 2 or 3 more acquisitions to complete in all the Strategic topic.
The idea is to have, as we said last time, right, dollars 300,000,000 to $500,000,000 in Aerospace Business or more or less what we have in the car business.
Capital expenditure, we see a range of €200,000,000 in the year 2019, whereas the most of the investment will be allocated to Piping Systems. We will build a new facility in China, but as well we construct the new training and customer centers in Schofhausen. Approximately 35% of the total CapEx will be spent at GF Casting Solutions. Still, major driver here is the Mills River facility and the rest, the remaining 25% are allocated to Machining Solutions.
Are there any major Brexit implications? I have seen in the past there were not, but maybe there are some hidden ones in the supply chain on the casting solutions maybe? Thank you very much for the question. I think it has 2 aspects, how they're going in England and what will be the consequence of Brexit going forward. What we have seen last year is that there was almost no country where we grew as much as in England.
So, they're astonishing for us. I think they did a very good job, especially to serve customers very well and to enter into new segments, like, for example, these data centers, right, which in Ireland play a major role in the economy now. That was very positive. For us, England is too high of Ireland. We look at it as one market.
We should not maybe, but it's like this, right? Brexit, I feel we depend on England for about 2% of our sales. So yes, may have an impact, but not really significant for the corporation, right, if things go wrong. I think the more important impact would be if there is a real trade war in between the U. S.
And Europe or in between the U. S. And China. I don't know if I answered your questions about Brexit. Was it answered?
Yes, perhaps also in connection with supply chain. For example, on the automotive industry, For example, on the automotive industry, because it's not always that you directly can allocate the direct sales in the U. K. With the actual impact of Brexit? Okay.
Well, basically, our main business in the U. K. Is Piping Systems, right? We do also good business in Machine Solutions. So what we did is to increase a little bit the lager, I mean, the stock in the U.
K. So able to whatever happens to serve our customers in that country. But I didn't see how the U. K. And Europe cannot find a middle ground, right, frankly speaking.
It's very astonishing if it doesn't find a middle ground, in my view. But who knows?
Armin Reis Berke from ZKB. Two questions. Well, we were the Costing Solutions in Romania, when I'm right. How does this develop? I mean, while the technology might be not as sexy as Precicast, but still, I would be interested.
And then China, you just mentioned the market there is big and no worries about, but how is the situation about building technologies, especially for piping system?
Okay.
And also machining solutions, I mean, it's an important market as well for your discharge technology.
In China, you mean?
Yes.
Thank you very much. Yes, I mean, in Romania, in fact, there was 2 plants or 3. 2 that we bought in this company, as you mentioned, they do quite well, by the way. We're investing quite a lot to bring some of the businesses from our plants in Austria to what is very whatever is manual in Australia we bring to Romania, right? So that's a positive.
Precicast, by the way, is also a company there where the more and more do all the, let's say, manual labor is called the post casting operations, right, that they did in Switzerland, more and more in Romania, right? So positive in Romania. I think we're quite happy about the investment there. Building technology in China was we were quite surprised. Last year, quite good actually, especially in the 3rd tire towns.
That was quite okay. And the machining solutions, yes, of course, in China, as I said before. We had in the second half year slowdown in China in investment goods. But it's continue, I mean, it will depend on many factors. 1, the trade tensions and 2, the 5 gs, right?
And 3, the new models of computers, smartphones, electronic equipment. Long term, I think, unless the sky falls upon our shoulders, I don't see why China will not keep a very good rate of growth. I mean, the needs are there, either for cars and therefore car components, including electronic components. In China, it's at the forefront of 5 gs. I mean, as you know, Huawei and so on, right?
They it's basically the factory of the world for many of the products we use every day. Yes, there are ups and downs, right? But in term, long term, I don't see why there should be a major breakdown there. By the way, we have now in China more employees in that country than any other country worldwide. We have 4,000 employees there, we saw in 400 in Switzerland, much less in Germany now that we sold 2 companies, right?
U. S. 1500 and so on. So at least also, I think we are much better in my view, right, diversified geographically or globally as we were before. That helps to compensate 1 region or the other.
You've seen last year, we've compensated basically China with U. S. Any other question? There is no other question? If there is no other question, I think before concluding our remarks and after 11 years at the helm of GF, I would like to thank you all very much for your long standing interest in our company, your always challenging questions and your insidious analysis.
It's been a privilege for me to share with you a part of the history of GF, and I hope you will give my successor, Andreas Muller, the same level of challenge and attention you gave me over the years. Thank you very much.