Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- GF Piping Systems demonstrated resilience in European markets and increased profitability to a comparable EBIT margin of 13.3%.
- GF Casting Solutions significantly improved profitability towards an EBIT margin of 8.8%, driven by strong business momentum in China.
- The integration of Uponor is ahead of plan, with achieved synergies exceeding initial expectations for 2024.
- Products with social or environmental benefits now account for 73% of the group's total sales, surpassing the 2025 target of 70%.
- GF's half-year sales exceeded CHF2 billion for the first time, reaching CHF2.4 billion, a growth of 22.8%.
Negative Points
- The strong Swiss franc and weak construction market in Europe negatively impacted business activities.
- Organic sales declined by 3.2% year-on-year, reflecting a subdued first quarter.
- GF Machining Solutions started the year with an exceptionally weak quarter, resulting in a break-even comparable EBIT.
- Negative currency effects put pressure on EBIT, resulting in a decrease of CHF17 million.
- The European construction market faced continued headwinds, with building permits declining in the double-digit range.
Q & A Highlights
Q: Can you give us an update on what you expect for organic sales growth per division and the outlook for the construction sector?
A: We expect organic sales to be slightly positive for the group in 2024, with an accelerated organic development in the second half. By division, we anticipate slight improvement in GF Piping Systems, continued negative growth in GF Building Flow Solutions due to the weak new-build market in Europe, slight organic growth in GF Casting Solutions, and flat growth in GF Machining Solutions. The construction market in the Nordics is forecasted to rebound in 2025, while major markets like France and Germany remain subdued.
Q: Regarding the CHF50 million cost-saving program, is this a net number, and can you provide details on the split between full-time employees and productivity improvements?
A: The cost reduction program addresses both volume reductions and structural adjustments. The savings will positively support our results, mainly in the second half of the year. The CHF50 million is a gross number, with one-off items expected to be in the range of CHF10 million to CHF15 million.
Q: What is the expected structural benefit for free cash flow from the net working capital program?
A: We confirm our guidance of CHF200 million to CHF250 million for the full year. The structural benefits from net working capital management, focusing on inventory management in Piping and Machining Solutions, should provide a short-term benefit of CHF20 million to CHF25 million.
Q: Can you elaborate on the weak performance of GF Machining Solutions in Q1 and the customer markets affected?
A: GF Machining Solutions had a double-digit organic decline in Q1, mainly in electronic discharge machine tools and standard milling machines, particularly in the ICT sector and Germany. However, we saw organic growth in Q2, with a rebound in ICT in Asia and strong order intake in aerospace.
Q: Will there be any changes in the reporting structure for the full year 2024, and will we get guidance on pro forma figures?
A: The reporting structure for the full year 2024 will remain the same as presented midyear. The new operational structure will be reported starting in 2025 after the ERP systems are updated.
Q: Regarding the CHF50 million performance program, is this the full effect for the year, or will there be additional benefits next year?
A: The CHF50 million is the effect expected to be booked in 2024, with some one-off costs considered. We expect 50% to 70% of this effect to remain in 2025.
Q: Are you satisfied with the geographic footprint of your production, considering currency FX impacts?
A: With the acquisition of Uponor, we have an ideal production setup across Europe and the US. We are comfortable with our current production footprint.
Q: What percentage of GF Piping Systems' revenue comes from the microelectronics sector?
A: The microelectronics sector accounts for approximately CHF110 million in the first half of the year, expected to grow in the second half, with an annual range between CHF230 million and CHF250 million.
Q: What is the revenue share of GF Casting Solutions in the energy and aerospace sectors?
A: The energy and aerospace sectors account for approximately 6% to 8% of GF Casting Solutions' turnover.
Q: Do you still expect net debt to EBITDA of 2.6 to 2.7 times at year-end, and what is the pace of deleveraging thereafter?
A: Our target remains below 3 times net debt to EBITDA by year-end. We plan to issue CHF600 million in Swiss bonds in the second half of the year and aim to deleverage by CHF600 million over the next 3.5 years, targeting a net debt to EBITDA ratio of 1 to 1.5 times.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
