Georg Fischer AG (GF) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Financial Analyst Conference Call and Live Video Webcast 2022 of Georg Fischer. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. [Operator Instructions]

Ladies and gentlemen, welcome to the financial analyst conference 2022 of GF. After almost 2 years of virtual conference, we are very happy to welcome you here in person. We are holding this conference today as a hybrid event, and therefore, we also welcome all participants in our webcast. Today's presentation to the financial year 2021 will be held by our CEO, Andreas Müller, and CFO, Mads Joergensen. First, Andy will comment on the course of the business of the year 2021, and Mads will give you further details on the financial statements followed by an outlook of Andy. After the presentation, we are pleased to answer your questions. I will give you further instructions later on because we also have participants in the webcast. This conference will be recorded, and you will find a recall on our website as of tomorrow. After this conference, you are invited to an [ Opera outside ] in [indiscernible]. Having this said, we will start the conference. Andy, the floor is yours.

Thank you, Daniel. Welcome, and thank you for joining us for our annual conference here in Zurich, SIX Convention Point. I have to admit it is a great pleasure to see people face-to-face. The last 2 years, we have conducted many events and we have spoken much myself, my presidents of the divisions to [indiscernible] only. And I can tell you, it is completely different when you are able to see faces and you get somehow a feedback whether what you say is being recognized, understood or disagreed. So looking forward also to see your participation then we're going to have our speeches here, but also our Q&A. Slide 2. GF delivered a strong growth in sales and increased profitability in 2021. The focus on resilient end markets, especially those that center on sustainability supported the positive development. Most of our key markets recovered amidst the ongoing pandemic. GF recorded an excellent order intake of more than CHF 4 billion. All 3 divisions contributed to this success, which corresponds to an increase of 28%. Sales strongly increased by 17% to CHF 3.722 billion. Overall, currency fluctuations played a relatively minor role only, resulting in organic growth of 16%. GF could substantially increase its first half year operating results. At the end of the year, the EBIT amounted to CHF 278 million, all 3 divisions clearly improved their previous year's performance, and we were able to increase the EBIT margin to 7.5% compared with 5.8% in the year 2020. The strong sales in the fourth quarter, and our focus to have sufficient inventories to be able to deliver any time despite any supply chain shortages, led to an increase of our net working capital, and negatively affected the free cash flow before acquisitions, which still reached a solid level of CHF 151 million. Earnings per share increased by 86% to CHF 52. The Board of Directors will propose a dividend of CHF 20 per share at the upcoming shareholder meeting. This represents an increase of 33% compared to the previous year. Regarding the new strategy cycle, which began in 2021, I'm delighted to say we kicked off many initiatives to bring our cooperation forward to become a sustainability and innovation leader. New market segments such as battery, Medtech and hydrogen power applications represent only part of GF's newly developed markets and applications. GF is well on track to achieve its strategic targets 2025. Slide 3. Let's have a look at the sales development in '21. Sales increased by CHF 538 million to CHF 3.722 billion. The organic growth was 15.9%, many of GF end markets recovered and in addition, showed strong growth. However, the important aerospace industry remained flat on previous year's level, and the automotive industry was heavily hit by the chip shortage in the second half of 2021. Despite these headwinds, GF is already back on pre-COVID sales levels, resulting in an organic growth of 6.4% compared with 2019. GF Piping Systems reached sales close to CHF 2 billion with an organic growth of 14.3%. GF Casting Solutions reported an organic growth of 15.9%, well above the global car production development. The new casting company in North Carolina from our joint venture with Linamar, which is still in the ramp-up phase, contributed to this development with 6.7 percentage points. GF Machining Solutions was benefiting from its newly developed market segments and the overall industry rebound. Organic growth was 19.9%. Let's turn to Slide 4. GF clearly outperformed its major end markets. The substantial organic growth in the U.S. of 27% was mainly due to a strong industry and utility business of our Piping Systems division, and partially due to the sales from our new light-metal foundry of GF Casting Solutions. However, labor shortages became and continued to remain a key issue. In Europe, GF achieved an organic growth of 16%, with all 3 divisions contributing to the solid development in various key end markets. Sustainability is driving demand in various areas, for example, energy-efficient buildings, e-mobility and renewable energy solutions. In China, GF has grown 10% organically, above the national GDP with machine tool supplies achieving an all-time high, and GF Piping Systems recording strong sales growth in industrial key markets. The solid setup of GF in this country is clearly paying off and enables GF to benefit from the current Chinese 5-year plan. Let us now turn to Slide 5. We were able to increase the EBIT margin substantially to 7.5% from 5.8%. EBIT amounted to CHF 278 million, an increase of CHF 93 million. The better utilization of our plants across the world and the continuous shift to higher-value businesses are the 2 main drivers. GF Piping Systems achieved an all-time high EBIT margin of 12.5%. Its solutions for industrial water treatment, urban infrastructure and building technologies experienced a strong demand throughout the year. GF Casting Solutions turned around to a positive EBIT for the full year with a margin of plus 0.5%. The division was heavily exposed to the erratic call-off behavior of the automotive customers in the second half of the year. During our midyear conference, we highlighted that this situation was mainly observed in the U.S. However, over the course of the second half year, we also faced chip shortages and erratic call-off behavior worldwide. Raw material and metal prices went up to heights never seen before during the last quarter, and negatively impacted the EBIT of the division. GF Machining Solutions nicely leveraged its strong order book, and came in with a strongly increased EBIT in the second half of the year. The EBIT of the full year amounted to CHF 47 million, corresponding to an EBIT margin of 5.4%. Let's continue with a more detailed view on the 3 divisions, Slide 6. GF Piping Systems focused on growing high-value businesses that address sustainability needs. This focus paid off, and the division achieved a record sales level of CHF 1.971 billion, corresponding to an organic growth of 14.3% for the full year. The picture on the right illustrates a Stockholm water installation, community water treatment facility, which is of a size of 18 kilometers underground of the city. And you see a typical application where GF supplies its product, which is a water filtration unit with 2 automated valves and 2 pneumatic actuated valves, but as well ball valves. This is a typical application where GF Piping Systems is providing its products too. The operating result was CHF 247 million with a margin of 12.5%, also a record number compared with CHF 193 million the year before. The solid position of GF Piping Systems in its end markets, combined with a strong global presence, resulted in growth rates well above GDP rates. Industry applications have grown by 19%, solutions for infrastructure by 8%, and for building technology by 16%. Demand of global key market segments, such as microelectronics, water treatment and data centers has substantially increased further. On a regional basis, all 3 regions contributed to the overall growth, most noteworthy in the U.S., with its solid demand for Industrial Solutions. Let us now turn to Slide 7. GF Piping Systems recently inaugurated its new logistics and fabrication center in Phoenix, Arizona to serve its global semiconductor customers. The picture on the bottom left shows the new products jointly developed with FGS Brazil, which is well integrated by now that have been launched across other countries on the American continent. The picture on the top right gives you an idea about our new plant in India. GF produces product for water and gas infrastructure applications, recording a growth of more than 60% last year in India. Our new facility in Yangzhou, China, the picture on the bottom right is well on track, and will be inaugurated in the second half of 2022. With the completion of this facility, GF will double the production capacity for industrial products in China. Let's now look at Slide 8, illustrating 3 end market segments of the division. Sales of products and services for the water distribution segment increased by 14% to CHF 260 million. Sales of products for the microelectronics and data center segment went up by 26%, resulting in sales of CHF 180 million. The global demand is fueled by the ongoing digitalization and therefore, demand of semiconductors. The water treatment segment has grown by 12%, and reached sales of CHF 210 million in 2021. A typical product, which I brought with you, which might look rather simple is our new butterfly valve. This butterfly valve is entirely made of plastic, which is unique in the industry. Today, most of these applications are being made out of metal, and obviously, corrosion plays a major role if you have that in an installation. This one has a very long longevity, but the lifetime of this product is a multitude higher than a metal one. The disk, what you see here is the most crucial part. It looks simple, but if you have a pressure rate of 16 bar, this disk needs to cope with a high 10s. And therefore, the skeleton is made out of [ polymet ], and it's covered with a PVDF material, which is rather heat resistance and therefore, allows a unique opportunity to apply it in that kind of concept. So one of the advantages is clearly the lifetime. The second one is, if you imagine this product is being produced also in that size, which weighs in metal than well above 50 kilograms whereas the plastic version is still below 20 kilograms or 25 kilograms, it depends. So being able to be installed by 1 person only. That's exactly where GF Piping System is going to address the needs of our customers in terms of sustainability. In addition, even when it looks quite simple, this product has also a digital positioner, which gives back the position of the disk to allow to have a remote control on such kind of applications. GF Piping Systems is a reputed global supplier for this kind of applications, especially addressing the sustainability needs of our customers such as water loss mitigation, water quality improvement or energy efficiency. The 3 market segments illustrated on this slide comprise around 1/3 of the division sales. Slide 9. The picture on the top shows the hydrogen-powered chip. Dutch regulation requires inland shipping to reach 0 emission by 2050. GF is providing piping solutions for cooling air and hydrogen applications on this ship. The picture on the bottom illustrates the biggest offshore wind farm in the world located in the North Sea, U.K. GF is providing customized specifically engineered piping solutions for various applications in the power transformation process. And the picture on the right shows our recently launched bio-attributed PVC product range, the sustainable PVC resin, made using tall oil, a waste product from paper production is expected to reduce the CO2 emissions during production by 90%, while maintaining the highest quality, durability and recyclability. Let us turn now to GF Casting Solutions, Slide 10. Also, the global automotive industry started the year on a more optimistic note, we saw a strong negative impact from the chip shortages in the first half of the year, especially in the U.S., which was then felt globally in the second half of the year. Sales went up by 17.1% to CHF 880 million, corresponding to an organic growth of 15.9%. 1/3 of this growth is attributable to the U.S. The remainder is due to our strong positioning in lightweight body and structure components. The division recorded a record lifetime order intake for e-vehicle components. The order volume of 430 million represents 43% of the division's total lifetime order intake or 60% of the automotive order intake, whereas the entire order intake of the division was 1 billion lifetime orders. These orders contribute significantly to the division's strong positioning for the future and to a positive short- to midterm outlook. GF Casting Solutions was able to turn the previous year's operating loss into an operating profit of CHF 5 million. However, the sharp rise in raw material costs, which are contractually passed on to customers, and which can be only recovered with a time lag, weigh on the division's results. Subdued and fluctuating demand in the U.S. due to the semiconductor shortage as well as labor shortages had an additional negative impact on the performance of the light metal plant in North Carolina, still in ramp-up, and thus on the division as a whole. Our new light-metal facility in Shenyang, China, delivered its first trial cost well ahead of time, allowing GF Casting Solutions to better serve its customers in the #1 car market in the world. Slide 11 shows the extreme price development of the division's 3 most important raw materials. On the left, secondary aluminum. It's a recycled aluminum. The middle, primary aluminum. And on the right, magnesium. In the last quarter, the price of magnesium increased sevenfold. The [indiscernible] passing on of these raw material prices to customers burdened the division's operating profit by more than CHF 12 million in the year under review. As you can see, in the charts on Slide 12, e-mobility continued its successful course in Europe and Asia. The light green bars and bubbles represent the purely battery-powered electric vehicles, the blue bars represent the sales figures of the so-called plug-in hybrid cars. New electric vehicles account for around 20% of all newly registered vehicles in Europe and China, with its strong order intake for e-vehicle components, the division is well positioned for the future. I'll draw your attention shortly to this e-engine housing. This is a high-pressure die casting aluminum component. I would actually lift it, but it's still heavy. And it's -- the difference with that kind of components is very complex. So the cooling -- and therefore, the channel and the precision needs to be substantially higher than any other part. That's also due to the fact that the routes per minute in such an e-engine are substantially higher than in a conventional combustion engine. So it's about complexity and it's about precision where GF can play its full potential, and delivering this kind of products to our customers. Let us turn to Slide 13. The picture on the left gives an impression of the new light-metal production in Shenyang, China, a facility which has been entirely ramped up over the course of the last 2 years, being in lockdown. The state-of-the-art foundry captures GF-targeted and gradual expansion to better serve customers in the northern regions. When working at its full capacity, the plant should generate products for a sales level of up to CHF 100 million. The facility is closely connected with the Suzhou Light Metal Casting unit and the Chinese R&D center in Suzhou. The picture on the right shows our customers, Sinotruk, the leading truck manufacturer in China. GF was asked to develop the mounting [ bracket ] for one of the Sinotruk flagship products. With its extensive expertise in reducing the way of casted components, GF managed to produce new, lighter cars, designs and ultimately, a reduction in CO2 emissions to an operation of the heavy-duty vehicle. Let us turn now to GF Machining Solutions, Slide 14. The division showed a strong momentum over the course of the second half and delivered a remarkable result. Order intake increased by 33%, thanks to a strong development in key markets such as Medtech, ICT and Automotive. Sales increased by 20% to CHF 873 million. Positive sales development was seen in Europe, China and North Asia. Whereas the U.S. remained at the subdued level due to the strong dependence on the aerospace business in that region. Operating income amounted to CHF 47 million, thereof CHF 38 million alone in the strong second half of the year. The EBIT margin was 5.4%, almost a doubling compared to the 2.8% in 2020. Recent innovations underlined our strong position in the EDM machine tool business. GF Machining Solutions is one of the technology leaders in this area. Advanced manufacturing and automation solutions grew by 36% last year. Project activities in aerospace increased gradually during the year, project completions and order intake remain nevertheless subdued. A picture on the slide shows an insight of our recently inaugurated new medical device production competence center in Germany. Slide 15. Services revenues increased by 17% to CHF 263 million. A part of its strategy, the division is expanding its offering in this field. Newly lifetime service products, picture on the left and the integration of newly acquired service provider in France, picture on the right, were important steps in this direction. The picture in the middle shows a new digital service in the area of maintenance, which ultimately leads to faster and higher machine availability. At the same time, our service technicians contribute to a reduction of CO2 emissions by executing and monitoring the services for their global customers increasingly digital. On Slide 16, we showed a sales development of selected end market segments of GF Machining Solutions. Machine tools for the production of medical technology products increased by 58% to CHF 90 million. The strong growth is not just the result of multi-technology and precision competence, but automation is also paying an increasingly important role in this area. I also quote a few examples with me to better illustrate what GF is capable to do with its machine tools. For example, this is a hip implant which goes into the leg bone where you're later going to find the ball on it, which is the hinge. The laser-texturing machine tools of GF Machining Solutions are capable to create [indiscernible] or surface, which is more likely that the bone can grow on then if it wouldn't be treated that way. So this is, for example, one of the solutions, which is going to create an advantage, obviously, for the patient and hopefully, no one in this room going to need. Secondly, this is a 3D printed hinge for your shoulder that goes exactly that way. This is being additive manufactured whereas you might can see from the distance with a very special structure on the surface, which allows the integration of the bone cells much faster. But secondly, it is in a fully automized production cell. So you have the printer connected with a special tool, which goes on a milling machine, where then this special surface is being machined where the ball for the hinge is being connected to. So this creates a complete transparent and data-recorded process, fully automized, allowing more adapted and customized implants in the future. The ICT segment, which has already proven to be very resilient in 2020, grew now by an impressive 14% to CHF 153 million. GF's leading role in EDM is an important driver for this pleasant development. The automotive segment is mainly divided into the areas of mold-making, for plastic applications and e-mobility. The later is an important growth segment also for GF Machining Solutions due to the high precision requirements in the machining of production equipment for e-engines. This specific segment grew by 59% overall in 2021. Just to make that clear, GF is not in the part production, GF is in the production, of the production means to produce the parts then. For example, in this specific process, it's a stamp which being produced with an accuracy level of 1 to 2 microns only for the stator and rotor sheets, which being stapled on each other and need to be super accurate. Slide 17 illustrates only a subset of the multiple innovations at GF Machining Solutions. On the left, we see the most advanced laser-texturing machines that can replace chemical etching and eliminate hazardous process materials. That's also one of the machines being used for the special services. This technology is used in a mold and die industry, but also in the ICT and, as said, in the Medtech. In the [indiscernible] illustration of the newly launched digital services and a new tool workpiece automation device to increase productivity at our customer sites. Factory automation is one of the key pillars of our Strategy 2025 where we want to increase the share up to 25% of all machine tools being sold in this division. The picture on the right shows the latest generation of EDM via machines, which reduced energy consumption by up to 30% and simultaneously increase efficiency by 25%. The key driver for this development is a new Spark control technology. Let me now turn back to the corporation. Important steps towards sustainability targets 2025, Slide 18. The ongoing focus on development of products with a social or environmental benefit resulted in an increase of 2.8 percentage points to a share of 60% of GF sales. GF Machining Solutions launched several new machines with a significant increase in energy efficiency. GF Piping Systems industrialized its new pressure-regulating valve for urban infrastructure to mitigate water loss, and GF Casting Solutions could further increase its share of lightweight casting components for e-mobility. But our innovative solutions do not only enable our customers to contribute to sustainability. GF as a group was able to reduce its CO2 emissions, Scope 1, 2, by a substantial 16% to 274,000 kilotons. And lastly, but importantly, at management level, the share of women managers appointed in 2021 went up to 30%, already above the target for 2025. 2021 marks the first year of our Strategy 2025 cycle, Slide 19. The current and refined strategy emphasizes the central role of innovation and solutions for the sustainability needs of our customers. The 5-year plan addresses the 3 strategic focus areas of profitable growth, portfolio resilience and a goal for the full potential spirit to further evolve into a performance and learning culture. Our financial strategy targets are an EBIT margin of 9% to 11% and an average organic growth rate of 4% to 6%. Addressing the first strategic focus area, all 3 divisions shifted their sales efforts and innovation focused towards intelligent and sustainable solutions. A few of these were highlighted in today's presentation. In order to increase its robustness through portfolio additions and operational excellence, GF continued to invest and expand into less cyclical businesses, such as the water and gas business in Brazil, but also further strengthened its market segment organizations, for example, water treatment, e-mobility, medical device production in all 3 divisions in 2021. GF also kicked off the culture movement to unleash the full potential of the organization through a series of initiatives such as the implementation of the new corporate values related to carrying, learning and performing. With that, I will now hand over to our CFO, Mads Joergensen, for a detailed look at our financials.

Thank you very much, Andy. And ladies and gentlemen, also from my side, a warm welcome. I have the pleasure to present to you the financial accounts of 2021. On the first Slide 21 here, you see in the upper part of the table, the sales per division. It's clear that 2021 was a year with strong sales recovery in all 3 divisions. At group level, sales increased organically by 15.9% to CHF 3.7 billion. At GF Piping Systems, the sales growth to CHF 1.971 billion was driven by a strong performance in all 3 divisions and all 3 business areas. In particular, the Industrial Piping Systems outperformed due to strong demand from the semiconductor industry and the data center markets. The utility business was particularly strong in Europe and North America. Whereas in Asia, in particular in China, the markets remained relatively subdued. The building technology business enjoyed another very successful year driven by Europe, Turkey, and the starting recovery of the marine segment. Sales at GF Casting Solutions increased to CHF 880 million. The recovery that we experienced in the first half of the year with organic sales growth of 38% was clearly impacted in the second half by the well-known semiconductor crisis. This affected several casting plants around the world. The aerospace segment did not show signs of recovery, but that was actually in line with expectations. The industrial segment had a strong year as well, and overall sales in the division grew organically by 15.9%. Sales at GF Machining Solutions came in at CHF 873 million, an increase of CHF 148 million. The strongest growth contributors were the electrical discharge or EDM, and the advanced manufacturing segment, that is laser and 3D printers. The latter with a year-over-year growth close to 36%. The Milling segment only recovered slightly, mainly due to a continuously subdued aerospace segment. Finally, the service business enjoyed a strong recovery in line with the overall division, and hence the division ended up with a 19.9% organic sales increase. In the lower part of the slide, you see the growth by semester. Now the 20% organic sales growth in the first half of 2021 should, of course, be seen relative to the 14% decline that we saw in the first half of 2020. But similarly, the 12.1% sales growth in the second half of 2021 should be seen in the backlight of a small organic sales decline of 2.6% in 2020. And therefore, the sales performance in the second half is similarly strong. Slide 22 shows additional details on the sales development, starting from the left side. The effect of acquisitions here mainly is the Brazil-based FGS, a leading PE pipe producer that we consolidated in March. The currency effect was this year marginally positive. This, of course, should be seen in the light of a CHF 172 million negative effect in 2020. Next, we saw the organic growth. Pricing adjustments are typically shown as an integrated part of organic growth. However, in 2021, the effect of price adjustments was so material that it warrants a separate disclosure. As can be seen in the chart, we recorded an organic growth of 15.9%, split in price adjustments of 4.8% and a volume effect of 11.1%. Slide 23 shows the sales development from a regional standpoint. The Americas grew organically by 24% and the region, therefore, accounted for 20% of our sales compared with 19% in previous year. The biggest increase came from GF Piping Systems, which grew by 19%, and followed by GF Casting Solutions. Europe grew organically by 14%. The region ended up constituting only 44% of our sales, down another percentage point from 45% in 2020. Back in 2019, this figure was 47%. The strongest growth contributor was GF Machining Solutions with 25% growth driven by the strong recovery of the machine tool market, both GF Piping Systems and GF Casting Solutions showed double-digit growth rates as well. The relatively low growth rates in Asia should be seen in relation to Asia being the only region which had shown positive growth in 2020 of 2%. Growth was mostly driven by the strong recovery of the machine tool business as well as a recovery of the industrial piping systems market in China. And in percentage terms, the sales in Asia remained at 31%. The sales in the rest of the world were mainly attributable to a buoyant piping market in Turkey. Despite the severe adverse effects of the Turkish lira, the country was able to record strong growth in Swiss francs. Slide 24 provides some more details on the foreign currency effects. On the left, you see the effects by division. The strong negative effect with GF Piping Systems largely relates to Turkish lira and U.S. dollars. With an effect on group sales and EBIT of plus CHF 3 million and minus CHF 14 million, respectively, the effect of currency was significantly below that of 2020. The table on the right-hand side illustrates that in 2021, the Swiss franc depreciated against the euro and the Chinese yuan and appreciated against the U.S. dollars and the Turkish lira. Slide 25 shows the EBIT and margin development. GF Piping Systems came in with an all-time high EBIT of CHF 247 million and an EBIT margin of 12.5%, some 1.2 percentage points above 2020. The profitability was driven by the high sales growth of industrial piping systems and a high level of plant utilization. During the course of 2021, GF Casting Solutions recovered well in a number of plants around the world. As mentioned by Andy, however, a combination of the aggravated semiconductor crisis, historical volatility of raw materials and an unseen shortage of labor adversely impacted some businesses, in particular, the North American joint venture plant in Mills River. Overall, the Casting Solutions division came in slightly above breakeven. Whereas GF Machining Solutions had a challenging first half, the division was able to significantly improve the profitability in the second half of 2021. The EBIT increased up to CHF 47 million, up from reported CHF 20 million in previous year. The improvement is even further noticeable when you factor in that the EBIT in 2020 contained a nonrecurring profit of CHF 10 million relating to the sale of an operational building in [indiscernible] in Switzerland. Overall, the EBIT margin increased from 2.8% to 5.4%. The EBIT of the corporation came in at CHF 278 million with an EBIT margin of 7.5%. In the lower end of the table, you can see that the profitability was slightly lower in the second half of the year compared to the first half, and this is a seasonal effect of the holiday months of August and December. On Slide 26, you see a summary of the consolidated income statement. The gross value added increased by 19% to [ CHF 1.478 billion ], slightly over the increase in sales. The personnel expenses increased by CHF 112 million to CHF 995 million. This was caused by the following 2 effects. First, the short-time work compensation decreased by CHF 38 million compared to 2020. And secondly, we hired additionally around 1,000 new employees to cope with the sales rebound. EBITDA increased from CHF 299 million to CHF 412 million. The corresponding EBITDA margin increased from 9.4% to 11.1%, moving very close to the all-time high EBITDA margin of 11.8%, which was achieved back in 2017. Depreciation and amortization came in at CHF 134 million, slightly up from previous year. Moving to the financial results. Here, the net cost increased from CHF 19 million to CHF 23 million in 2021. The effect was caused by lower interest income, and a CHF 2 million higher interest expense caused by an increase in Turkish lira denominated loans. The tax expenses increased substantially to CHF 53 million. However, the effective income tax rate decreased from 22% to 21%. Net profit attributable to Georg Fischer shareholders increased from CHF 116 million to CHF 214 million, leading to an increase in earnings per share from CHF 28 to CHF 52 per share. Slide 27 shows the asset side of the consolidated balance sheet. Liquidity remained strong in 2021. Cash and cash equivalents increased by CHF 103 million to CHF 944 million. The increase in accounts receivable of CHF 61 million was mainly attributable to the very strong sales growth in December. Despite this growth, the days sales outstanding decreased by 6 days to 59 days in 2021. Inventories increased by CHF 138 million, half of which relates to GF Piping Systems. This was caused by higher safety stock levels to ensure supply, and towards the end of the year, a drastic increase in raw material costs as well. Hence the day's inventory outstanding increased from 110 days to 117 days. But still well below the 122 days we saw in 2019. In total, our assets increased from CHF 3.45 billion to CHF 3.77 billion, and the increase is mainly attributable to an increase in net working capital and in cash. Slide 28 shows the liability and equity section of the balance sheet. The current liabilities increased from CHF 986 million to CHF 1.318 billion, an addition of CHF 332 million. This was caused by an increase in accounts payable, and prepayments from customers of around CHF 134 million as well as from the reclassification of our -- from noncurrent to current liabilities, of our CHF 150 million corporate bond, which is due in September 2022. GF's equity increased from CHF 1.389 billion to CHF 1.496 billion. This is higher than the level of 2019. And finally, the equity ratio remained stable around the 40% mark. Let us now move to the free cash flow statement on Slide 29. The EBITDA increase of CHF 130 million from CHF 299 million to CHF 412 million was the main positive driver of our cash flow. However, as previously mentioned, the strong sales in December led to a significant increase in net working capital. And the effect, as you can see, is a negative CHF 94 million on operating cash flow compared to a positive effect of CHF 76 million in 2020. Our capital expenditure remained with CHF 135 million at the level of previous year. The top 3 most important CapEx projects implemented in 2021 was the successful construction of GF Casting Solutions facility in Shenyang with CHF 16 million followed by the installation of further production equipment at GF Linamar, also with CHF 16 million, thereof half paid by Georg Fischer. And thirdly, the refurbishment of part of our GF Machining Solutions plant in Losone with CHF 7 million. Cash flow from acquisitions relates mainly to the acquisition of the before mentioned FGS in March 2021. But we also increased our stakes in a number of smaller companies in China and the U.K. during the course of the year. For your recollection, of the CHF 25 million cash inflow in the line other additions disposals, net in 2020, thereof CHF 90 million relate to the already mentioned sale of the property in [indiscernible] in [indiscernible]. Eventually, in line with our guidance, we generated free cash flow before acquisitions of CHF 151 million. On Slide 30, we show the most important key figures in a summary here. For another year, GF was able to lower the net debt further to CHF 54 million down from CHF 117 million. Combined with the increase in EBITDA, this led to a net debt-to-EBITDA ratio of 0.13x. This is an all-time low for this important financial KPI. The second lowest was in 2017 with 0.37x. Moving to the return on invested capital. This KPI increased from 9.3% to 16.4% in 2021. The increase was mainly caused by the increase in our profitability. As can be seen from the table, GF Piping Systems reached an all-time high return on invested capital of impressive 32.1%. As a result of the solid balance sheet, sound free cash flow and strong liquidity, our Board will propose an increase in the dividend by 33% from CHF 15 to CHF 20 per share. This is a payout ratio of 38%, and we are now back in our targeted payout range between 30% and 40%. Finally, as mentioned earlier, the head count increased by 993 people, hereof 281 relates to the acquisition of FGS in Brazil. On the last Slide 31, you can see that at the upcoming Annual General Assembly, the Board of Directors will propose to undertake a 1:20 share split. Georg Fischer has for some time been among the most expensive shares on the Swiss Stock Exchange, and the split will bring the share price closer to the median of the market, and is done in order to cater more to retail investors. Now let me finally reflect on the financial results. Looking back on 2021, it wasn't really a plain vanilla year. But despite the challenges we had in supply chain, highly volatile raw materials and shortages in labor, Georg Fischer was able to achieve a significant increase in sales, a substantial increase in profitability, and our corporation remains very financially solid. Thank you very much for your attention, and I hereby hand over to Andy for the outlook.

Thank you very much, Mads. Let me now turn to Slide 33 for the outlook 2022. GF started 2022 with a promising order book and a favorable momentum in all divisions. GF Piping Systems can rely on its strong position in several end markets as well as the ongoing shift to higher value businesses and the growing sustainability needs of its customers. GF Casting Solutions, the global chip shortage should gradually abate somewhat in the course of the year, and enable the division to further benefit from the shift towards e-mobility in the automotive industry. The aerospace segment is still subdued, but shows signs of a mild recovery, supporting the development of 2 divisions. The positive development at GF Machining Solutions in the fourth quarter of 2021 is expected to continue in the coming months. The geopolitical tensions including the terrifying war in the Ukraine, the persisting COVID-19-related issues and supply chain constraints reduced visibility even further. Assuming that these issues subside, the world and its leaders become rational and diplomatic again, and no unforeseen circumstances arise, GF expect mid-single-digit volume growth in 2022, and thus a further step towards achieving the targets of Strategy 2025 for sales and profits. Thank you very much for your attention. We are now ready to take your questions. I will hand for the instructions now to Daniel, who gives us a short idea how to deal with the Q&A session.

Thank you, Andy. As said, now we are ready to open the Q&A session. First, we will start with the questions from the participants in this room, and then we will take the questions from the participants, which will log in over phone. [Operator Instructions] Thank you.

Bernd Pomrehn from [indiscernible]. Thank you for providing such a very clear volume guidance for the current year. What about pricing? Obviously, everyone is talking currently about inflation, cost inflation, wage inflation, raw material inflation. Where do you stand in terms of price increases having entered the year? So year-on-year compared to 12 months ago? Or what kind -- what magnitude of price increases do you expect for the year? And do you expect that price increases will have an impact on volume on end market demand?

I think it's -- thank you very much for the question. I think it's a complex question. It's not -- if you would have looked up the world estimates in regards to inflation just a week ago, it looked already completely different than what we have seen this morning in the news. So inflation most likely will be higher than anyone would have expected, and particularly now here driven by the energy and raw material supplies, which will ultimately later on also affect the consumer price in business. So back when we have actually thought about this guidance, our inflationary tendency [indiscernible] that we, first of all, have a full year effect of the price increases, which we have launched last year, but also, obviously, accompanied with further increases during the course of this year. It is that, obviously, at this point of time, the discussion with end customers is a very open one. Everyone understands the situation because it affects the entire industries. So it, in fact, suppliers upstream downstreams customers. And there's a quite good tolerance here to openly negotiate on these topics because you can't hardly digest if you have, for example, industries which are heavily depending on energy, then energy is made 5% to 6% of turnover. You most likely can't absorb 2x or 3x higher energy costs. So anything what I would tell you now would be just guess-working, and I don't have the crystal ball, but it's definitely not 1%. It's definitely in the range 2% to 3%, what we're going to see and depends a little bit on the outcome of the current situation, but the [indiscernible] is made even further amplified.

Alessandro Foletti from Octavian. Maybe on Piping Systems. Can you explain why the order intake is so much higher than sales. This is not really a normal situation?

What is special is what you see is the growth in industrial piping systems and industrial piping systems are typically projects with a longer delivery time. So it's a very correct observation typically, the majority of the sales is a 24-hour supply after the order. But because we are growing so strongly in industrial piping systems, they typically have free and sometimes even longer delivery 3 months and even longer delivery times. That is the special reason this year that the order intake is higher than the -- or substantially higher than the sales.

And a follow-up on this. Would it then be wrong to say, give or take, CHF 2.2 billion turnover for piping in '22 is possible?

As we have said, our intention is a growth in the mid-single-digit volume growth, and that applies actually to all our divisions. I think what we have seen as Mads just said, with the industrial businesses being much higher than in the past, but that's also projects, for example, particularly the ones which we have taken in for the microelectronics for the contraction of microelectronic fabs that is made even exceeding the year 2022, okay?

All right. Understood. And then maybe my last question on piping again on the margin. Development was good, no doubt about it, but you're still not into your range. And in my opinion, '21 was really a great year. So if you don't make your target in such a great year with 14% and 15% organic growth, prices that go up volumes, good capacity utilization, et cetera. When will you do it? Or what must happen so that you can do it?

It's a question which can be raised exactly as you said. But what we would like to face is that we're going to move towards more solution-oriented applications. So we're going to develop further products. For example, the industrial business has grown up to a level of CHF 770 million in that division. So as you may recall, the division is constructed out of 3 sub units, one is industrial business applications with CHF 770 million, CHF 740 million for infrastructure, and a tap below CHF 500 million for the building technologies. So considering that we're going to move with more solutions in all areas, we're going to appreciate, and also increase our higher-value business solutions. And therefore, we will expand our margins in the years to come.

Also areas like automation, just to complement what Andy said. Automation is a high-margin business areas where there is a portfolio shift, which is one of the growing. Then the division has clearly centralized its governance of the plants. It's traditionally very decentralized by a new operating structure. We expect some margin increases there as well. And finally, we have also talked about during when we presented the strategy at the time that piping systems want to change the go-to-market partly that some of the large accounts that today are served through dealers would be served directly on selected basis or the building blocks of our margin expansion in piping over the years to come. So it's strategic.

It's on purpose.

So without saying too much in 2022, I mean, can we reach that level, already? Or can we approach is it -- forgetting about Ukraine and everything else now. Like let's say, it's a normal year. You have this nice order book. You can grow, et cetera. You continue your measures. Would you then with the price that you have -- you're willing to make it already this year?

In a perfect world, yes, that should be our target. Whether I would like just to build on what Mads just said, it is also the first year of our Strategy 2025, what we have just passed. And we are continuously investing into our market segment organizations, in our R&D centers to be able and capable to develop even further innovative solutions in the future. And as I said also, the approach how we're going to go to the markets will be changed. But this is firstly, coming with an investment and here foremost in people, and that also weighs on the costs.

Walter Bamert from Zürcher Kantonalbank. Could you please give us more insights into 3 important piping markets, U.S.A., China and Turkey. In the first one, what is currently changing there that you grow so strong, apart from you grade products properly you say? In China, it's also the product mix, what are you exactly doing in piping? And how are you exposed to the construction market? And how do you experience that one? And in Turkey, how can you explain the big success despite the currency situation and the economic situation?

Bamert, thank you very much. Let me start with the U.S. As already mentioned, we have a very strong industrial business in the U.S. So a lot of semiconductor customers are located in the U.S., but also, for example, our businesses in piping systems for data centers is constantly growing. Here, we're going to provide piping solutions for conveying cooling liquids in a very energy-efficient way, but also, obviously, providing to the large players when it comes to semiconductor production in the U.S. So that drives a very strong demand for our industrial business drives here, the substantial growth of the Piping Systems division of 28% in the U.S. Besides that, we have a very strong utility business in the U.S. That means we are there in the distribution of gas for households. And we have, for example, house connectors, but also metering units there. And that is also giving us quite a good development. In China, as you correctly said, it's the product mix. I'll give you an example. We are very strong when it comes to environmental applications in landfills in China. For example, we're providing center technologies, but also automated control units into such kind of applications where landfill water treatment is being done. And this is an important growth area, since also the sustainability topic becomes more and more relevant in China. So therefore, industry is going to need to treat on the one hand side, their water. On the other side, landfills have been recognized being one of the major polluters when it comes to rivers but also lakes or ground water. So there is a huge potential. So we're going to grow in that kind of industrial applications. We have also infrastructure products in China, where we're going to provide pipes for water, but also for gas distributions also here for households. So this makes quite a large part of the growth there. Our exposure to building technologies in China is relatively low. So we have only a minor business there, which is -- so we are not in the large commodity markets exposed. And since Mads is one of our Turkey specialists. I'm going to leave the floor on the growth rates, and the Turkey business development to him since he was also one of the people acquiring this company. Thank you.

Thank you, Andy. Turkey is -- I agree with you. On the face of it, it's counterintuitive that we're actually able to grow. But Georg Fischer Hakan has a special market position in Turkey, which is clearly in the premium. So it's quality premium, and it's quality price. There's a big mass market in Turkey where price increases are difficult to get through, but the segment we are in there is much more, let's say, willing to absorb increases on the cost side. And this has actually led to, I would say, a booming business last year in the construction of higher-end buildings.

[indiscernible] Credit. Very brief question on CO2 or perhaps 2 questions. One, is it fair to assume that Casting Solutions has a major part of CO2? And two, do you actually trade in either direction in CO2 certificates?

Thank you very much, Mr. [indiscernible] The largest CO2 emissions, of course, stem from our Casting Solutions plant, where we have a number of measures actually in place. So we are really trying to install energy-saving measures in these plants. But some of these are areas which are difficult to abate. And therefore, what we typically do is we procure CO2 -- or I'd say, renewable energy certificates. So it's very important to understand that we're not talking greenwashing. It is specifically not a greenwashing. It is similarly the higher price procurement of renewable energies that we use as a source. That is the main reason where we -- how we actually abate the situation in Casting Solutions and try to achieve our targets.

Thomas [ Wong ] from [indiscernible]. I'd like to follow up a little bit on the question of Alessandro for the Machining Solutions business. What does it take there to bring you to your target range? And then I have a second question.

Thank you. Machining Solutions, as I said, is still suffering from the subdued aerospace businesses. And I think we have dedicated plants which are going to produce machine tool solutions for the aerospace industries, and here, in particular, for the machining of [indiscernible] engine components. And we're going to need to have that business somehow back may not entirely to what we have seen before COVID, but that is definitely delivering a margin expansion in this division. Secondly, where we're going to see a lot of potential is the integrated solutions. As I said and given this example on the Medtech device production or the medical implant production, you see multi technologies being used. And if you can integrate this multi-technology -- so an integrated, automated technology, you're going to create a higher value business. This by the way is not only valid for the medical device production, one of our success stories highlighted in our annual report is about our customer [ Schaeffler ] in South Germany. He is producing components for the e-engines, and he is using a fully automized mold shop. So whatever has been part -- individual piece production step as one by one is becoming more and more now an automized production. So for example, this [ fine steps ] which you need to produce this e-engine sheet metal, which you stack on each other up to 300 is now requesting so many molds that the mold production is being automized. So we're going to see in the further growth in integrated automized solution. We see also a potential in increasing the margin. And this is -- may also the answer to the labor shortages we see more or less across the world. So factory automation is a key pillar of our Strategy 2025 for Machining Solutions.

My second question would be a market that might be accelerated because of the tragic event we see now is hydrogen? What's your position in the hydrogen market?

Hydrogen is -- first of all, when you're going to convey hydrogen or you're going to provide it into the applications as we have seen this ship. This is only 1 application. We have already done quite a few test installations across Europe, where we convey or going to treat hydrogen, particularly hydrogen resolved in other medias. So we're going to see piping systems playing an important role here with its systems. One of our product ranges has been just recently homologated and certified to be able to convey hydrogen. When it comes to our Casting Solutions division, as you may know, we have also an investment casting facility. This investment casting facility is producing special foils or elements for IGT, industrial gas turbines where you see more and more hydrogen being used also for the combustion process. And last but not least, our Machining Solutions division is obviously providing a technology for this ultra-precision require compressor machining. So it's an indirect benefit what we're going to see here. So directly exposed this piping systems and our casting solutions division.

I can't see any follow-up question, actually. So therefore, I would recommend that we take the questions from the phone. Please, operator, take over.

The first question comes from Jörn Iffert from UBS.

Yes. And would be 3, please? And if it's okay, I take it one by one. The first question would be, please, on Casting Solutions, in particular, the auto segment. It's my math, I might be totally wrong, since 2013, there was no real cash generation. On the positive side, I mean there were some external factors which were under your control. But I was wondering, I mean, is there any plan B, if you're not seeing a marked improvement on global production rates for the next couple of years? Or what is your strategy going forward, yes, in particular, when the market would not recover so quickly? Maybe starting with this question, please.

First of all, we expect, obviously, a market recovery in the years to come. We see the chip shortage being artificially instilled by escalated demand. It's also clear that this is not something which can be solved overnight. So I think statements which we have seen just 9, 10 months ago have been, hopefully, overoptimistic we are not naive today. I think we have a much better visibility on what it means on these different levels of semiconductors being required in producing a car. So we're going to see this not easing entirely in the next 1, 2 years. So we assume that it will take 2 to 3 years before we're going to have no harming effect any longer from the semiconductor. The entire industry, in our view, is rather healthy. We see that demand -- end customer demand is rather high than low and can't be provided by the OEMs. I think lead times for new cars are getting to historical lengths. Last year, we have seen some 5 million cars being sold, which haven't been produced in the year. So there have been a reduction in further inventories across the world, which needs to be built up once again. So we're going to see actually the underlying secular demand is rather healthy in this industry. Also, a very important point -- or very important here for GF is that we're going to change towards more e-mobility components. As shown in our presentation last year, we could secure 43% of lifetime order intake for e-mobility-driven cars. And this is, for us, an important step in the transformation of our division towards sustainability provider or a solution provider into that segment. So we see -- the market overall is a healthy market. But yes, you're right, we're going to see this chip shortages affecting our business in the year to come. However, with a slight difference to last year, we assume that the call-off behavior will be much more balanced in this year than what we have seen last year. Last year, we had a very erratic call-off cancellation situation. Whereas now towards the end, we have recognized that our customers are dealing with the situation much more in a professional way. And yes, the call-offs are lower to the shortage of the chips, but much more foreseeable.

And just for the very short term, for '22, let's assume volumes for any reason, would be flattish in the global car production. With your CHF 12 million [ pass ] on the rising raw material costs, which we had a delay from '21, and with some efficiency improvements in Linamar, would you be able to have on flattish volumes and EBIT in the range of maybe CHF 20 million, CHF 30 million for '22? Would this be a fair math in this division?

It is obvious now that as said by Mads and myself before, we do not expect that we're going to have to recope with all these heavy headwinds in the year 2022. So therefore, your estimation could be reasonable.

And then the second question, please, on your CapEx plans. CapEx was a bit below expectations, I think, for 2021. Can you elaborate what your CapEx plans in terms of total magnitude are for the next couple of years? And then also on free cash flow return with capital, you are in the range of 6% to 8%. If you add back the goodwill. And yes, therefore, the CapEx estimate for the next couple of years would be quite helpful to better see where the economic [indiscernible] is coming?

Thank you, Jörn. The CapEx this year was surely not intentional. It actually relates to a delay in the young drill plant of piping systems, which is not invoiced in phases, but rather as a lump sum at the end of the construction. They did not reach the end of the construction in 2021. That's why those CHF 20 million, CHF 23 million is moved into 2022. So actually, our budget was somewhat higher for last year. Going forward, we are looking at a CapEx, ranging between CHF 180 million and up to CHF 200 million going forward. And from the free cash flow, as you can see, this is a very volatile number. Net working capital is an important part of the free cash flow calculation, and just looking at what happens between these 2 years. So we actually -- we fixed with our guidance between CHF 150 million to CHF 200 million should be around this area.

And the last question is just a technical one. I think you stated your medium-term targets of 4% to 6% organic sales growth and 9% to 11% EBIT margin. If I make the math from the 2020 level, the midpoint brings me shy of CHF 4.3 billion. I think you mentioned CHF 4.4 billion should be reached by 2025 organically. Just to double check this, if I may follow up here.

No. I think the guidance of CHF 4.4 billion is the correct one.

Okay. All right. I just want to double check if anything has changed here.

No. No.

The next question comes from Remo Rosenau from Helvetische Bank.

Going back to pricing shortly. If I understood you correctly, you said your best guess would be 2% to 3% price impact for [indiscernible] in average. Now looking at it from another angle, if we look just at the first of January '22 compared to the first of January '21 in your 3 divisions with -- what kind of higher prices did you start into the year first of January versus first of January in each of your 3 divisions, just to get a feeling how much you could do? I know that this has nothing to do with the full year average price increase, but still if you have this number.

I will leave a part of this answer to our CFO, but just as a general remark, the metal prices, which we have seen also, which is part of the price adjustments, which we do fluctuate. That means prices, which we have seen in the last quarter 2021, might going to be partially being passed on to customers in the first quarter, but it will also lower during the course of the year. So it is also depending a lot on our metal price fluctuations.

And you're right, from last year, there is a carry on for the castings -- carryover from the Casting Solutions part, a lot of the price increases should also happen this year contractually. For piping systems, they have typically in the industry, depending on the country, very strict ways of increasing the prices. It's typically first of April or first of October. So that actually has already happened now, partly last year. There, the market is easier to absorb these price increases, traditionally in the construction industry. And for Machining Solutions, here, we have seen also increases on the raw material side, and we have been able to more or less compensate a large part of that for that division as well. To better understand, again, Machining Solutions is a division that plays in the premium segment. There are other players, for instance, the American company Haas, that's a different market segment, they go on volume and lower price, but Machining Solutions is higher priced -- let's say, high precision machine solutions provider.

Okay. And still, the numbers if possible?

I have to refer back to what Andy said. It's simply very difficult at the moment to provide any information that will make sense in a -- let's say, in working out a model. And I suggest maybe you would take up the topic with Mr. Bosiger at a later point in time. But at the moment, we don't think it's wise to come up with more details on this.

Actually, we can't see any further questions from the phone. [Operator Instructions] Meanwhile, I would like to ask you here in the room for any follow-up questions.

Again, Bernd Pomrehn from [indiscernible]. You mentioned the further improved balance sheet for the strengthened balance sheet, which you could leverage, what's your view on M&A opportunities? How do you see this -- how do you see multiples? Why haven't you been so active regarding acquisitions last year? So could we expect something -- could we see bolt-on acquisitions?

Strategy 2025 foresees that we're going to acquire CHF 0.5 billion of sales. That's our target. It's obviously that you need to agree on an investment or an acquisition. Many of our acquisitions done in the past have been built on long-lasting relations. So we have created a good relation with the owners and ultimately, we could increase or we could acquire then the companies. Having not seen that many acquisitions in the first year of Strategy 2025 results that this is most likely not a process which goes overnight. So we have a pipeline of potential acquisition targets of whether those are going to materialize or not, that is to be seen in the months and years to come.

There are no follow-up questions. I would like to hand over to you, Andy.

Thank you very much for your participation in person. And we're looking forward to, first of all, update you midyear, but we will also have during the course of the second half of the year, our Capital Market Day, where we're going to present not only the innovations of the corporations, but also an update on the relevant markets and their development and relevance for GF. So once again, thank you very much. And I think we share [indiscernible] outside this room. So looking forward to some private discussions. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for participating in the conference. You may now disconnect your lines. Goodbye.