Ladies and gentlemen, good morning. Welcome to the Half Year Results of the Bjork Fisher Conference Call. I'm Iruna, the course call operator. I would like to remind you that all participants will listen only mode and the conference is being recorded. After the presentation, there will be 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 Mr. Yip Sehra, CEO of Bjerg Fischer. Please go ahead, sir.
Thank you very much. Ladies and gentlemen, welcome and thank you for participating to our half year conference. Present on our side are Andreas Muller, CFO Daniel Boziger, Head of Investor Relations Gerardo Lemma, Head of Corporate Communications and myself, Yves Serra, CEO. I'm happy to report Slide 2 that the positive momentum we enjoyed last year continued during the first half of 2018. Sales increased 20 percent to CHF 2,396,000,000 for an organic growth of 12%.
All three divisions and all regions did contribute to the increase. The operating results went up 24% to CHF 208,000,000, resulting in a 8.7% return on sales against 8.4% in the 1st semester of 2017. And the return on invested capital was up 2 percentage points to 21.2%. The net profit after minorities increased by 27% to CHF 150,000,000. I think the first half figures show that we are well on track regarding the implementation of our 2020 strategy.
Moreover, the portfolio of GF Automotive has been enriched with the acquisition of Precicast in Switzerland, a leading precision casting specialist in the promising aerospace and gas turbine field. As a consequence, the division has been renamed GF Testing Solutions. Slide 3 shows that all 3 divisions did contribute to our top line increase. This time around, GF Casting Solutions had with 28%, the highest growth, supported by acquisitions but also the euro, which did appreciate compared to the 1st semester of 2017. GF Piping Systems and GF Machining Solutions with 15%, respectively 18%, also did increase their turnover in a significant manner.
On Slide 4, you will notice that the overall profitability increase from 8.4% to 8.7% mainly comes from the strong performance of GF Piping Systems, which increased again its EBIT margin from 11.7% to 12.1% and GF Machining Solutions, whose return on sales was lifted up from 6.3% to 8%. On the other hand, GS Casting Solutions saw its operating margin slightly decreased from 7.3% to 6.5%. Slide 5 shows that all 3 divisions did generate a substantial amount of value for our shareholders in the first half year. All three had a return on invested capital over 20%, and that's clearly above our 7.5% cost of capital, resulting for the corporation in a 21.2% return on invested capital. Turning now to all 3 divisions.
Starting with the largest one, GS Piping Systems, Slide 6. Thanks to its good position in growth markets, the division increased its turnover by 15% to CHF 947,000,000. Organically, that's a growth of 11%. The highest growth was achieved in its industrial applications, while the treatment, for example, chemical plants or even semiconductor plants, a sector which, especially in Asia, has witnessed a strong expansion. The picture of the slide shows some of the very specialized piping systems we deliver for wafer fabs.
The growth in utility and building technology was also sustained, especially in the U. S. And in China for gas distribution and in Europe for building applications. GS Piping Systems increased again its operating profit by 19% to CHF 115,000,000, thanks to the additional load at most plants, but also thanks to its focus on high value products and businesses, which bore fruits and, in addition, the recent acquisitions of 2016, 2017 were accretive to earnings. The division, Slide 7, is also launching several promising digital products, such as a new thermal water sterilization system for hospitals to prevent Legionella and digital valves for its industrial applications.
The aim is to facilitate online monitoring and calibration as well as easily customized processes at our customer sites. Turning now to GF Casting Solutions, Slide 8. The division enjoyed a high growth of 28% for a turnover of CHF 924,000,000, free of acquisitions and currency effects, growth stood at 11%. And taking into account that raw material price increases are passed on to customers, the actual volume growth was 9%, which is to be compared with a 2% growth for the car industry worldwide this year so far. The division benefited from a good demand in the truck sector, but also from a growing demand for its lightweight components made of aluminum and magnesium, an example of which is a pictured door seal frame.
Worth noting is that electric and hybrid cars accounted for 30% of all new lifetime orders in the first half year. The division increased its operating result by 13% to CHF 16,000,000, but its operating margin retracted somewhat to 6.5% as raw material related price increases actually reduced profitability and the ramp up cost of its new light metal plant in the U. S. Went up in preparation for the production start at midyear. The recent acquisition, Slide 9, of U Casting in Romania, an aluminum light metal foundry and Presi Cast in Switzerland at a good start and are both accretive to earnings.
Going now to GS Machining Solutions, Slide 10. The division has lifted up its performance. Orders were up 8% to CHF 551,000,000, thanks to strong demand in Europe and in Asia, and sales reached CHF 525 1,000,000, an increase of 18%. Organically, that's a growth of 14%. As you can see on the slide, part of the growth stands on new connected devices, which generate a lot of demand for new electronic components, be it in cars or for new home appliances.
The operating results increased by 50% to CHF 42,000,000, which leads to a 8% operating margin, again 6.3% in the first half of twenty seventeen. Actually, the new products launched in 2017, Slide 11, did contribute the most to these profitability improvements, be it the new generation of wire cut electro discharge machines on the left, well suited among others, the precise production of medical components or the new milling machine for the fast machining of complex gears, as you can see on the right part of the slide. I'll now give the microphone to our CFO, Andreas Muller, for a closer look at our first figures.
Thank you, Yves. Ladies and gentlemen, welcome also from my side. It is once more a pleasure for me to present the half year figures 2018. On Slide 13, we show the sales per division. The corporation reached sales of CHF 2,396,000,000 corresponding to an increase of 20.3%.
Besides the strong momentum in the market, currencies such as the Chinese renminbi and euro strongly contributed to this development. Organically, sales increased by 11.9%. Ship Piping Systems continued its positive development in the first half of twenty eighteen. As compared to the first half of twenty seventeen, sales grew by CHF 121,000,000 to CHF 947,000,000, a 14.6% increase. Organic growth came in at 11.1%.
GF Piping Systems accounts for 39% of the group sales. Sales of GF Casting Solutions reached CHF 924,000,000, up by 27.8 percent from first half of twenty seventeen. Since most of the division's sales are realized in Europe, the currency impact was substantial. In addition, recent acquisitions nicely contributed to the sales growth. Organic growth came in at 11.3%.
Driving metal prices inflated sales by 2.5 percentage points. GS Machine Solutions grew by 18.2% to CHF 525 1,000,000. All regions and technologies nicely contributed to this development, added by India and Europe. All three divisions ended the 1st semester with double digit growth.
Slide
14 shows the distribution of the sales growth per key factors. Acquisitions contributed CHF 69,000,000 or 3.5 percentage points to the overall growth. The stronger euro and Chinese renminbi were the main drivers for the positive impact of CHF 97,000,000. Organic growth amounted to 11.9%, including on corporate level 1 percentage point from net to price increases. On Slide 15, we outline the regional sales development.
Sales in Europe increased by 22% as compared to first half of twenty seventeen, organically by 8.5%. All three divisions increased their sales in Asia. As a result, the group sales in this region has been up by 22%, organically 17%. Americas grew by 18%. Organic growth came in at the same level as currency and acquisition effects offset each other.
The growth in the rest of Europe was heavily impacted by the Turkish lira devaluation. Organically, this region grew by 7%. On Slide 16, a few more details about the CHF 97,000,000 counter impact on sales. CF Piping Systems and CF Machining Solutions have not been substantially impacted by the currency fluctuations since their exposure is well diversified globally. On the contrary, GF Casting Solutions generates 80% of its sales euro based countries, and therefore, sales were strongly supported by the 9% euro appreciation year on year.
As you can see on the right side of the slide, the weaker U. S. Dollar and Turkish lira have basically compensated the positive contribution of the Chinese renminbi. The euro contributed the most with CHF 93,000,000. Let us continue with Slide 17.
EBIT and operating margin per division. Year on year, GF Piping Systems increased its EBIT by 19% to CHF 115,000,000. The EBIT margin went from 11.7% to a strong 12.1%. Same drivers for good performance were the achieved high capacity at our plants as well as the increased sales of high value products and solutions. The recent acquisitions were accretive to earnings.
GS Casting Solutions increased its EBIT by CHF 7,000,000 to CHF 60,000,000, but the operating margin went down from CHF 7.3000000 to CHF 6.5000000. The recently acquired foundry in Romania and the Precision Casting Company in Switzerland were both accretive to the earnings of the division. Geof Machining Solutions recorded an EBIT of $42,000,000 a strong increase of 50% year on year. The operating margin went up by 170 basis points to 8%. Main pillars of this development are the healthy demand for its new innovative products as well as the high capacity reached at our facilities.
The corporation could grow its EBIT by 24% to 208,000,000 with a resulting EBIT margin of 8.7 percent. All three divisions showed a double digit increase in their operating results. On Slide 18, we see the details of currency impact on EBIT per division. As a consequence of the strong appreciation of Swiss franc in 2015, we implemented measures to naturally hedge our currency exposure. Main focus has been on the Euro Swiss franc Business Relations.
On the left the slide, you can see the impact per division. GF Piping Systems' euro gains have been partially offset by the U. S. Dollar and Turkish lira depreciation. GF Casting Solutions could benefit both from the stronger euro and Chinese renminbi.
The U. S. Dollar and euro currency effects on GF Machining Solutions are offsetting themselves and are therefore negligible. Whereas the U. S.
Dollar and the Turkish lira reduced the overall result, the euro and Chinese will mainly add an accretive effect with CHF 8,000,000 CHF 4,000,000, respectively, bringing the total currency impact on EBIT to a positive CHF 6,000,000. Let me turn now to Slide 19, the income statement of the corporation. As mentioned at the start of this presentation, group wide sales reached SEK 2,396,000,000 in the first half of 2018, resulting in a year on year growth of 20%. The gross value added went up by 17%, well in line with the actual underlying business growth, taking into account inflationary effects such as metal price increases at our division, casting solutions and positive currency contributions. Personnel costs went up by 15% and came in at CHF595 1,000,000.
Onethree of the increase is due to the currency developments. 4 percentage points come from acquisitions. Ordinary headcount and salary increases account for approximately 6%. The EBITDA could be increased again and amounted to CHF 200,000,000 to CHF 82,000,000, CHF 47,000,000 above the same period of last year. Cost of the higher capital expenditures and acquisitions, depreciation went up by 10% to CHF 74,000,000.
The EBIT increased by 24 percent to CHF 208,000,000. The financial result was basically on the same level of last year, where income tax remained stable on a reasonable level of 20%. Net profit after minority interest went up to CHF 113,000,000, a strong increase
of 27%.
Slide 20 displays the free cash flow developments. The higher EBITDA was offset by the increase in net working capital. The good performance in regards to our accounts receivable and inventory management could not compensate the increase of the respective balance sheet positions due to the strong volume growth, especially in the second quarter. The operating cash flow came in at CHF 46,000,000 slightly below the level of the first half twenty seventeen. Investments in property, plant and equipment went up to CHF94 1,000,000.
The main drivers remain the new facility in Beale and the new light metal foundry in North Carolina. Cash flow from acquisitions amounted to CHF 142,000,000, a result of the recently acquired Swiss based Freshikast Group. Free cash flow before acquisitions, due to the reasons explained, was below last year's figure and came in at seasonally driven minus CHF 55,000,000. For the full year 2018, however, we confirm our free cash flow before acquisition target range of CHF 150,000,000 to CHF 200,000,000. On Slide 21, I would like to summarize the key figures.
Year over year, net debt increased due to the acquisition of the Precicar scope, However, the net debt EBITDA multiple remains below 1. In April, we successfully issued a $200,000,000 10 year bond, further strengthening our balance sheet and debt maturity profile. Organic growth of 11.9% was even stronger than the 8.4% percent achieved during the Q1 of 2017. The return on invested capital increased by 2 percentage points, whereby the better operational performance outweighed the increase of the invested capital of CHF 256,000,000, driven by the new facilities in North Carolina and the recently acquired pressure cars group besides the operational increases. Earnings per share increased by CHF 8 and amounted to CHF 37 as of the end of June.
Our numbers of employee yield went up by 19 46 keeping out of 1434 employees have joined the corporation through acquisitions. Thank you for your attention. For the outlook, I will pass on to Yves.
Thank you, Andy. Well, ladies and gentlemen, we're now exactly at the midterm of our 20 sixteen-twenty 20 strategy. Looking back at the first half of twenty eighteen, Slide 23, Organic growth is with 12%, well above our annual average target of 3% to 5%. Those return on sales at 8.7% and our return on invested capital with 21.2 percent are well in line with our profitability target ranges of 8% to 9%, respectively, 18% to 22%. Sales have been expanding fast in the growth markets of Asia and America, thus reducing stepwise our dependence on Europe, which is our first strategic thrust.
Our shift to higher margin businesses, our second thrust, is proceeding abase, and margins have been clearly increased at least at GF Piping Systems and GF Machining Solutions. And our 3rd thrust, our strong focus on customer driven innovation, is being intensively pursued in order to anchor this important skill set into our culture. This is part of investments into our future. Now what do we expect for the full year 2018, Slide 24. Our momentum remains positive at all three divisions.
Jeff Packing Systems enjoys a high growth, especially for its industrial applications. At Jeff Casting Solutions, the demand for lightweight components, our specialty remains strong, and newly acquired companies are expected to contribute additional volume. And at GS Machining Solutions, the order book stands at a very high level. Therefore, barring unforeseen circumstances, such as potentially escalating trade tensions, we are confident to achieve a sales growth clearly over our 3% to 5% annual target. And profitability figures went in line with our 8% to 9% target range for the ROS and 18% to 22% range for the return on invested capital.
This concludes our presentation. We are now ready for your questions.
We'll now begin the question and answer session. The first question comes from Jorn Ifford from UBS. Please go ahead.
Yes. Hello, gentlemen, and thanks for taking my questions. And the first one would be, please, on Piping Systems. You're speaking about improving product mix and good utilization supporting operating leverage. However, the EBITDA margin, which should reflect this, was in brackets only flattish year over year in the first half twenty eighteen.
So can you elaborate if you see improvements in the second half coming from these two value drivers? Second question would be, please, on the raw material cost side. I mean, where do we stand here right now? Have you adjusted all your prices already? And should we see the benefits in the second half, in particular also then in the division casting solution?
And third question on gross profit margins. Can you confirm that the gross profit margin was up year over year except for casting solutions or in piping and in automotive and where you see the trends here also for the next 12 months? Thanks very much.
Okay. Thank you very much. I think we have 3 questions. One is about the EBITDA, right? Second, about the material costs and third, about the gross profit margin at all three divisions.
I'm going to start with the last one. Yes, I think the gross profit margin increased at JF Machine Solutions and JF Piping Systems. I think the main reasons were the focus on higher value, higher margin businesses and products. GF Casting Solutions, as we explained in the text, basically, we had the high cost in the U. S.
In preparation for the so called start of production. And also, we had headwinds due to the raw material price increases, which reduced the profit margins. Regarding material costs, yes, we have had headwinds in material costs in the 3 divisions, in plastics, for piping systems, especially in metals for gas casting solutions. For example, the scrap iron went up 20% during the 1st 6 months. So yes, we've had some material cost headwinds.
We passed on part of it, but with a delay, especially at GF Costing Solutions, Okay. At GF Piping Systems, we increased the prices months after months according to increase of material cost, but of course, there's also a bit of a DA, right? And Ria, your third question, the EBIT margin EBITDA margin, right? I mean, you have seen the EBIT margin is up 3 30 basis points, right? EBITDA margin is up about the same.
So I think, yes, there have been some headwinds in material costs. But overall, I think the focus on higher margin businesses is paying off in our view.
All right. And then to sum it up, what you have stated on the price increases and the mix benefits, shall we expect that the EBIT in the second half can reach a similar level like in the first half on group level?
Well, it will depend whether the material costs continue or not, right? Things fluctuate. Yes, the material increase, the material prices. Because if material prices continue to go up, we just chase them with a 2 to 3 months delay, right? So that's a bit the dilemma.
We don't know what will happen as much as our cost. So all things being equal, I think there should be no major change as far as gross margins are concerned.
All right. Thank you.
The next question comes from Charlie Ferembach from AWP. Please go ahead, sir.
Good morning, gentlemen. You mentioned the trade dispute between the U. S. And other regions. How big are your sorrows concerning this really?
And together with this, you have a big exposure to the German car market. If Germany sells less cars, you lose sales there. How do you see this situation? And also a familiar question, how does the trade agreement between Europe and Japan, does this have any impact on the Turkish Air? Thank you.
Well, thank you very much for your questions. Basically, the trade dispute issue, as long as it remains at the present level as long as it remains at the present level, the effect is minimal because the only effect we have so far is on the export of some machine tools we make in China to the U. S. But this affects less than 0.2% of our sales. So maybe we kind of wouldn't know what the next steps in the strategy will be.
But as long as it does not escalate more than that, it will be quite minimal. If it escalates, then we'll see. The German core markets, I think the same comment. I mean, it will depend very much whether the disputes in between the EU and America can be solved or not. But on the other hand, we have a, let's say, a well balanced exposure.
We have an exposure in Asia. We also have not only the German car manufacturers, but the truck manufacturers and all the manufacturers in Europe, America and Japan as customers. So it's difficult to say. And the EU Japan trade agreement, free trade agreement does not affect us much because basically Japan is for us a market of about, let's say, EUR 100,000,000. So it's a current for about 2% of our sales.
Thank you very much.
The next question from the phone comes from Mikhail Yitzhakar from Bank Vontobel. Please go ahead, sir.
Good morning, gentlemen. I would have maybe three questions. Firstly, just really the highlight for me was the Machining Solutions and the EBIT margin there of 8%. This is basically on the upper end of your midterm guidance. Do you think this 8% is sustainable?
Or would you see some pushback and this was just kind of a very, very good half year for you in Machining Solutions? Then maybe another question on financing costs with these new financing that you secured lately. Can you maybe give us a guidance how we should model our financing cost forecast going forward? And the third question would be on CapEx. In the first half, we've seen kind of quite an increase compared to the last year CapEx.
What is the guidance there? If you could maybe comment on that.
Well, thank you very much for the questions. I think I will answer the first, and our CFO, Andy Mueller, will answer questions 23. Regarding Machine Solutions, I think the stepwise shift we have done in the last 5 years towards market segments like aerospace, like medical, like ICT, information and communication technologies, is slowly paying off in terms of margin. And therefore, we think it's sustainable.
Okay. Thank you. In regards to our recently successfully launched new bond of €200,000,000 with majority of 10 years, there will be rather marginal impact on our finance costs since the replacing on in September currently carries a coupon of 1.5 versus the new one carries a coupon of 1.05. So therefore, the impact is rather negligible. In terms of capital expenditure guidance, we remain for the year end on our forecast of $200,000,000 to $220,000,000 as the most investments will take place in our new field facility as well in the North America facility in Nales River.
Both of them are clearly investments into the future of our cooperation.
Okay. Thank you very much. No further questions from my side.
The next question from the phone comes from Armin Reisperger Societe Generale Bank. Please go ahead, sir.
Hello, gentlemen. Just I didn't get the last one. The EUR $201,000,000 to $220,000,000 CapEx, you said 2 projects. 1 is Carolina and the
other project?
It's our new innovation and production facility center deal for machining solutions.
Okay. Yes, yes. Okay. Now my questions regarding Casting Solutions in second half year. I see material, you don't know the influence, but from the side from Carolina, with the start up there, do you see similar costs to bear in second half year?
Or in general, my question would be what do you expect for EBIT margin in second half year? It should be higher, isn't it?
So thank you very much. I think for the new plant in South Carolina, we start now the production of 1 component space. And I think in November, we started production of 2nd components. So of course, the cost will increase. We get a bit of revenue, right?
It will not be enough to compensate the cost. And therefore, for 2018, I mean, we'll certainly make losses in this plant. Now we don't know whether the losses will be in the second half at the level of the first, but probably not so far. We expect an improvement of situation in 2019 as long as more components come on stream. But for the time being, we need to have the people there to start with all the prototypes, the first series for 5, 6 components, whereas 1 or 2 components will be sold this year.
They do this stepwise increase in production as usual. And therefore, we expect a breakeven, let's say, more in 2020 and the profit in 2021.
Okay. Then my other question regarding the war Mr. Trump started. Well, you mentioned where you see no problems at the moment, but where do you fear some problems? Where could some problems arise, especially if there will be some new taxes
It's difficult to say. The main effect of a trade war will be failed globally and first on the customer sentiment worldwide, right? If there is a blend, all companies will be affected by this. So it's difficult really to say what whether it's a bit of bluff or a lot of blast or no blast at all, right? So I think we'll take it as it goes.
And basically, for us, what is important is to produce where the customers are and to be well diversified through customer, geographically, so at least we can compensate 1 continent with the other and one country with the other. So if one, for example, car manufacturer is doing less well, then we sell more to the other because customers buy more cars from the others. I mean, in the U. S, we have a lot of orders now from U. S.
Car manufacturers as well. So we could also imagine that sales could do up in the U. S. And so on and so forth. So we're able to speculate today, frankly speaking.
Okay. Thank you.
The next question is a follow-up question from Mr. Jur Efert from UBS. Please go ahead.
Sorry, gentlemen, that I'm coming back. Just two follow-up questions, please. The first one is, it wasn't 1% clear to me regarding the question in Piping Solutions. If I'm not totally wrong, the EBITDA margin was flattish year over year in the first half, and you stated that the gross profit margin improved in Piping Solutions in the first half. So there must be some impact on the SG and A cost base.
I mean was it wage inflation? Or what was happening exactly that we haven't seen any margin improvement on EBITDA in Piping? And the second question is, I think this is also coming from 2019? How flexible are you? And what are the 2019?
How flexible are you? And what other instruments you have if an economic downturn is happening? Regarding temporary workers, etcetera?
Okay. So I'll answer the second question, and Andy Miller will answer the first. And basically, it's our, let's say, duty to look at to look forward at all scenarios. And of course, we look always at which companies are doing well, which companies are not doing so well and how to for those companies not doing so well, what kind of measures we should take, right? For example, we had a company in the U.
S. Not doing very well 2 years ago, making plastic, polysilicon pipes. We restructured the company now. It's running at a very good 3 year on sales. So of course, we look at the fixed cost structure that we have.
And in case we see there would be a downturn, we are ready to act on this fixed cost structure. That's for the second question. And for the first question, it's on EBITDA of GEF Piping Systems. Can you answer, Andy? Yes.
Yes? I think what we the EBITDA, obviously, is influenced by quite a lot impacts. The situation which we have experienced in the material was definitely not helping our EBITDA margin in terms in the development of the first half of twenty eighteen. I think that's most of the explanation when it comes
to our
EBITDA development in Piping Systems.
So this means that the gross profit margin was not up year over year in Piping?
No, no. I think the question may turn to become a little bit more complicated when we look at gross profit margins. We are not talking about raw material margins, but you may mention this data.
I think the gross profit margins were up. We monitor that every month. So the gross profit I mean, the raw gross profit was up. I think what happened, in my view, is more in China. We have a big company in China, right?
And this John Ventura is the one which suffered the most from the raw material price increases, right? And it has a big impact on the EBITDA. But overall, I think the margin was quite sound.
Okay. Maybe we can follow-up at some later point in time because they're not going to clear some of them. But thanks very much.
We have another follow-up question from Mr. Reisberger from Societe Continental Bank. Please go ahead, sir.
Yes. Your sales figures were very high in Costing Solutions. So I'm a little bit worried because years ago, we had the situation you had overload in some foundries. And I am afraid a little bit that we have same situation again with Sunday shifts, night shifts on Sunday and so on and neglected maintenance, which causes some interruptions in the whole system, which are very costly. So can you elaborate a little bit on the situation, especially how much loaded are your foundries in general?
Well, thank you very much. Yes, the light metal foundries have a load of about 95% and the iron foundry is from 85% to 95%. So we're not yet in a situation of overload, but what you mentioned is correct. It is exactly a point that we're watching.
I would now like to turn the conference back over to Mr. Itz Serra.
Well, we'd like to thank you very much for your questions and for your interest in our company, and we'd like to wish you a nice day. Thank you.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.