Georg Fischer AG (GF) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the GF Mid-year Results 2024 Conference Call and Live Webcast. I am Moira, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Andreas Muller, CEO. Please go ahead, sir.

Thank you. Welcome, and thank you for joining our mid-year results webcast. Here with us today are our CFO, Mads Joergensen; Head of Investor Relations, Nadine Gruber; and Head Corporate Communications, Beat Romer. I am Andreas Muller, CEO of GF. Let's turn to Slide 3. For GF, the beginning of 2024 was characterized by significant challenges in key market segments. The uncertain economic environment and ongoing geopolitical tensions negatively impact the customer sentiment, particularly in the capital goods sector. Additionally, the strong Swiss franc and a weak construction market in Europe adversely affected our business activities. However, since the beginning of the second quarter, GF has been gaining momentum in various key markets. GF Piping Systems demonstrated resilience in European markets in a challenging environment and is gaining momentum on the back of the industrial rebound in the North Americas. Despite temporary weakness in some key segments, such as microelectronics, the division was able to slightly increase its profitability to a comparable EBIT margin of 13.3%. GF Building Flow Solutions, formerly GF Uponor, faced continued headwinds in the European construction market, with building permits once again declining in the double-digit range. However, the growing U.S. business and the cost measures that were implemented have secured profitability at the comparable EBIT margin of 10.3%. GF Casting Solutions has significantly improved profitability towards an EBIT margin of 8.8%. This was fueled by strong business momentum in China and the successful ramp-up of activities of the recently built factories in China and Romania. GF Machining Solutions started the year with an exceptionally weak quarter, which was partially offset by good performance in the second quarter. Comparable EBIT is at breakeven. Slide 4. The increased focus on the water and flow solutions business of GF Piping Systems and GF Building Flow Solutions, coupled with GF's global presence, allowed to balance a challenging macroeconomic environment resulting in a resilient half year results. Driven by acquisition effects, GF half year sales for the first time clearly exceeded the CHF 2 billion mark and amounted to CHF 2.4 billion, resulting in a growth of 22.8%. Adjusted for acquisitions and currency effects, organic sales declined by 3.2% year-on-year, reflecting a subdued first quarter followed by accelerating business momentum in the second quarter. Despite lower organic sales, GF recorded a resilient comparable EBIT margin of 9.1%. Negative currency effects once again put pressure on EBIT, resulting in a decrease of CHF 17 million. In response to the soft market environment, GF swiftly initiated corporate-wide performance improvement programs aiming to reduce the cost base by CHF 50 million. I will come back to this program in a moment. The integration of Uponor, our so-called value creation program, is on track and we are making swiftly progress on cost synergies, especially with regard to sourcing joint raw materials and streamlining the organizational setup. Let's turn now to Slide 5. To safeguard the targeted performance within the strategic corridor and to mitigate the effects of the soft start to the year, GF has implemented a series of performance and cash flow improvement measures, namely capacity adjustments to cope with reduced market volumes, which have been primarily impacted temporary employees, but to some degree, also our own permanent staff at our plants worldwide; structural adjustments to increase organizational efficiency in our overhead functions; last but not least, the execution of a net working capital program to secure operational cash flow with a focus on accounts receivable, inventories and accounts payable. These measures are expected to result in CHF 50 million reduction of our cost base in 2024. Slide 6. 65% of GF sales today relate to the Water and Flow Solutions business, in other words, to the GF Piping Systems and GF Building Flow Solutions division. The swift and successful integration of Uponor provides a strong foundation for GF's ambition to become a global leader in water and flow solutions. The integration is currently ahead of plan, and the synergies achieved to date exceed our initial plan for 2024. The activities included sharpening the organization's customer and business focus in building flow solutions and infrastructure. During the first month of the year, some 2,000 employees were allocated to new businesses, homes, and now operating in a sharpened setup that is more focused and geared towards the end market. It is important to mention that this change will only be reflected for financial reporting starting from year 2025. Initiating commercial integration activities, our teams are diligently working on bringing the combined portfolio of products and solutions to the market. As a result, GF Building Flow Solutions has refined its product categories to now include hot and cold water control as well as wastewater systems. GF Piping Systems has been establishing a framework to leverage storm water solutions beyond the Nordics. Leveraging procurement synergies. The 2 flow solutions divisions have a combined spend of CHF 1.5 billion, with only a 30% overlap in the current supplier portfolio. After kicking off the year with a broad initiative, the team successfully concluded several negotiations with joint key suppliers for raw materials. Slide 7. In addition to our strong focus on business performance and integration, we also reached a number of important milestones relating to our sustainability targets, 2025. Products with social or environmental benefits now account for 73% of the group's total sales, thus already exceeding the group's 2025 target of 70%. We further reduced our CO2 equivalent emissions, while accident rates remain at previous years' level. The first half of 2024, the number of newly appointed women managers were slightly below our ambition of 25%. In a significant step towards greater sustainability and innovation leadership, GF, in the first half of 2024, announced its ambition to reach net zero greenhouse gas emissions by 2050. Slide 8. Let us now take a closer look at the divisional performance, starting with GF Piping Systems. Challenging market conditions driven by a temporarily weaker microelectronics sector in Asia and persistent headwinds in the building technology sector in Europe and China resulted in a decline in organic sales of 4.5% to CHF 993 million in the first half of 2024. Water utility sector in Europe and the number of new projects in Brazil and Indonesia grew in the first half of the year. We are showing activities in the U.S. and the trend towards remote operating systems ensured a solid development in industrial water treatment. The Marine business saw continued growth in the new building segment, and retrofit activities are now above pre-COVID 19 levels. With a comparable EBIT margin of 13.3% and a comparable EBIT of CHF 133 million in the first half, GF Piping Systems once again demonstrated its resilience. This is even remarkable considering the significant negative currency impact of CHF 15 million on the division's EBIT. Let's turn to Slide 9, for an example of GF Piping Systems' differentiated capabilities. GF's business is closely connected to global sustainability trends. Desalination is considered one of the key processes for generating freshwater in the future. According to recent reports, the global water desalination market is projected to grow to USD 37 billion by 2032, with a compound annual growth rate of 9.6%. Earlier this year, GF delivered products for 3 desalination projects in Algeria, each with a capacity of 300,000 cubic meters a day, which will supply high-quality drinking water to 4.5 million people. GF is capable to delivering high-quality, targeted solution. Pictured here, for example, are customized PE headers and pressure recovery lines fabricated at our off-site manufacturing center in Spain. Slide 10. In the first 6 months of 2024, the newly consolidated GF Building Flow Solutions division, formerly GF Uponor, reached sales of CHF 561 million. Year-over-year, this reflects a pro forma decline in organic sales of 8.6%, with diverging trends in the different regions. Our European business suffered from declining volumes due to persistent headwinds in key markets such as Germany and the Nordics, where a number of new building permits declined by 40% over the last 2 years. It should also be noted that Uponor's base was higher in the first half of 2023 as the company recorded additional revenues related to a recovery after a cyber attack in late 2022 that had led to a postponement in orders and revenues. In the U.S., the division achieved organic growth of 1.6% and continued to record strong profitability. It is important to remember here that while Uponor's infra business was organizationally already part of GF Piping Systems in 2024, it was still consolidated into GF Building Flow Solutions. However, the corresponding figures of this business reported for the first half of the year were relatively weak, mainly due to the adverse weather conditions in the first quarter in the Nordics. Comparable operating profit was CHF 58 million. The comparable operating profit margin stood at 10.3%. With its new setup, GF Building Flow Solutions is focusing exclusively on solutions for efficient indoor control, hot and cold water supply as well as water quality systems. Slide 11. In addition to its enhanced business and customer focus, GF Building Flow Solutions is further strengthening its strategic position in the renovation market with its innovative solution. In this Slide this latest divisional innovation Siccus Mini underfloor heating systems launched in January 2024, GF Building Flow Solutions is setting new standards in energy efficiency and convenience of installation for underfloor heating, for renovation and modernization projects. With its small insulation height of only 15 millimeters, a fast installation time and reduce CO2 equivalent emissions compared to traditional solutions, it benefits installers, builders as well as end users. The solution has been recognized as 1 of the 100 best ideas of this year as it consumes 31% less thermal energy than radiators, and can be used with all types of floor covering. Let's move on to Slide 12, GF Casting Solutions. The global automotive industry started the year with a production output in line with the division's strong prior year. However, development was heterogeneous across the different regions. Production output in Western Europe declined by 7%, whereas North America and China experienced growth rates in the low to mid-single-digit range. As at the end of June 2024, GF Casting Solutions share of e-vehicle related high-pressure die casting lifetime orders for 60%. E-vehicle related divisional sales in China grew by 25%. Strong sales in the aerospace and industrial segment partially offset reduced call-offs in the European automotive market. GF Casting Solutions organically increased sales by 1.2% to CHF 462 million. Operating profit increased in the double-digit range to CHF 41 million, resulting in an EBIT margin of 8.8%, and thus, close to the strategic corridor. The ramp-up of the 2 plants in Shenyang, China and Pitesti, Romania, both dedicated to the production of advanced lightweight components, is proceeding according to plan. After only 1 year of operation, Shenyang is already contributing positively to the results. The division further demonstrates its innovation capabilities with a new version of the cross car beam, which was developed following customer requests for an alternative cockpit design. This is showcased on Slide 13. The newly developed component allows for more legroom, integration of the head-up display and maximized crash performance. Moreover, it can be manufactured on existing machines, providing a significant investment advantage for our customers in the automotive industry. Let us now turn to GF Machining Solutions on Slide 14. The global machine tool business experienced a slow start to 2024, in part due to a general hesitance to invest in capital goods in China and Europe. Consequently, GF Machining Solution's EDM and its milling business in Europe, in particular, faced significant challenges. However, sentiment improved starting in the second quarter with a noticeable upturn in momentum in China and accelerated activity in the ICT segment. The division's order book improved in the second quarter and exceeded the same quarter in the previous year. Order intake in the first half of 2024 was CHF 440 million, resulting in a book-to-bill ratio of 1.1. Sales amounted to CHF 392 million in the first half of the year, organic sales were down by 5%. Positive impulses came from a strong performance in the laser and advanced technology segments, as well as a continued strong order book for aerospace and energy. Comparable EBIT was CHF 2.1 million. Slide 15. GF Machining Solutions once again demonstrated its innovative strength and reinforced its leadership as a supplier of automated ultraprecise high-performance machine tools. Designed for the manufacturing of single high-precision plates for aerospace and power generation applications, the Liechti Turbomill 500g, simultaneous 5-Axis Machining center delivers unrevealed accuracy, power, speed and process reliability. In addition to outstanding precision, cycle time is 30% lower compared to previous GF Machine Solutions offerings. This latest innovation sets a new standard for plate machining in the growing aerospace sector and paves the way for the division's achievement of its strategic targets. With that, I will now hand over to our CFO, Mads Joergensen, for a detailed look at our financials.

Thank you, Andy, and good morning also from my side. It is my pleasure to provide you with some more insights into our financials in the first half of '24. But before we start, I kindly draw your attention to how the financial accounts are presented at the divisional level. Although we have transferred the operational responsibility for all building technology businesses to our Building Flow Solutions division and the legacy Uponor Infra business to the GF Piping Systems division, the financial accounts for H1 2024 are still presented in the original divisional structure as at the time of the acquisition. Slide 17. Order intake for GF Corporation in H1 2024 was CHF 2.4 billion, which is an increase of 23%, driven by the acquisitions of Uponor and Kors, contributing CHF 586 million in total. The currency impact was negative and orders declined organically by 2.9%. The 2.8% organic decline of GF Piping Systems reflect the postponement of large orders for semiconductor plants in the U.S., which we expect to book in the second half of this year. As you know, order intake matters mostly for GF Machining Solutions, and here, you see the smallest decline resulting in a book-to-bill ratio, as mentioned by Andy, of 1.12x. On Slide 18, you see that sales for the corporation increased by CHF 446 million or 22.8% to CHF 2.4 billion caused by the before-mentioned acquisitions. The currency impact was negative in the first half as well, with an organic decline in sales of 3.2%. While sales decreased organically by 4.5% of GF Piping Systems, we saw organic growth of 1.2% at GF Casting Solutions. Sales dropped by 5% organically at GF Machining Solutions due to the reasons mentioned earlier this morning. Due to the weak construction markets in Northern Europe and Germany, sales of GF Building Flow Solutions declined organically by approximately 8.6% compared to Uponor's H1 2023 sales. For GF corporation, all regions declined organically: Europe by minus 4.1%, Americas by minus 3.1% and Asia, minus 1.7%. The only bright spot was GF Casting Solutions in Asia with organic sales growth of 5.8%, and GF Machining Solutions with an organic sales growth of even 10.4% in that region. From our sales bridge on Slide #19, you see the organic decline of CHF 63 million or 3.2%. The negative currency impact of CHF 89 million or 4.5%, and the positive acquisition effect of CHF 598 million, mostly stemming from Uponor. The organic development was mostly driven by volume effects. Price effects did not play a significant role this year. Turning to Slide 20. The decline in sales also had a negative impact on our comparable EBIT margins, most noticeably with GF Machining Solutions. For GF Corporation, the comparable EBIT margin was 30 basis points lower at 9.1% in H1 2024 compared to previous year. Despite lower sales, GF Piping Systems recorded a higher margin, an achievement which is already reflecting the initial effects of our cost reduction program. GF Casting Solutions achieved a significant improvement in margins, and also the consolidation of GF Building Flow Solutions was accretive to GF's profitability. GF Machining Solutions with its close to breakeven result was a drag on the margin of the group. GF Building Flow Solutions margins was lower compared to Uponor's 2023 stand-alone result. This was obviously mainly due to the lower sales level, but also due to a PPA-related increase in depreciation of total CHF 4 million or CHF 8 million on a full year basis. Looking at the EBITDA bridge on Slide #21. You see that the reported EBITDA has increased to CHF 276 million in H1, but the EBITDA margin decreased by 70 basis points to 11.5%. This is mainly an effect of GF Machining Solutions missing profitability. On the right-hand side of the chart, you see the CHF 27 million one-off items that have impacted comparability of reported EBITDA. The adjusted comparable EBITDA amounted to CHF 302 million, implying a comparable margin of 12.6%, 40 basis points above the first half of 2023. More details to the items affecting comparability are presented on the next slide, #22. As communicated earlier, we have booked the remaining purchase price allocation step-up effects on inventory of CHF 40 million in the first half year. For the Uponor integration or the Value Create program, as we call it, we booked charges of CHF 7 million in the first half. For the full year, we estimate the one-off integration costs from this program to be CHF 15 million to CHF 20 million. Coming back to the cost reduction program or the performance improvement program, the corresponding one-off costs related to this restructuring amounted to CHF 6 million in the first half of '24. With the actions initiated here, we strive to meet our full year comparable margin guidance for 2024. Moving to Slide #23, where you find an update on the value creation program. The progress in the procurement work stream is clearly ahead of expectations, and we have already achieved CHF 7 million of synergies in the first half of 2024. Furthermore, we have eliminated a number of duplications and redundancies in our corporate processes. For instance, we delisted Uponor in Finland and we also consolidated the treasury and legal corporate functions. We continue to expect 50% of the synergies to be cost related and the other 50% to stem from tangible commercial synergies, such as cross-selling in key markets. The commercial synergies are more complex as they, in many cases, require external approvals. And the implementation, therefore, will take longer. For year 2027, we confirm our target of CHF 40 million to CHF 50 million of synergies. On Slide 24, we present a summary of the income statement. As you can see, material costs increased less than sales. This is mainly due to lower material costs at GF Piping Systems and GF Casting Solutions, as well as the lower material cost ratio of GF Building Flow Solutions. Operating expenses increased over-proportionally compared to the sales growth, and this is almost exclusively related to the substantially higher operating expense cost ratio of GF Building Flow Solutions. Moving to personnel cost which are growing slightly higher than sales, the main reason is that the personnel reduction measures mentioned early on, predominantly have an impact in the second half of the year. And in addition, the costs include approximately CHF 8 million in personnel restructuring charges. The reported EBITDA margin was down 70 basis points to 11.5%, and due to effects from the Uponor integration and the one-off cost value creation and cost reduction programs. Adjusted for these one-off effects, the EBITDA margin increase is 40 basis points to 12.6%. Depreciation and amortization up almost 50% due to the additions from the acquisition of Uponor and including the before-mentioned CHF 4 million step-up purchase price application effect on building, machinery and equipment. Moving to Slide #25, which shows the currency effects in the first half. A strong Swiss franc led to an adverse effect of CHF 89 million on sales and CHF 17 million on EBIT. The biggest single negative effect came from the Chinese Yuan, which was down almost by 6.4% in the first half. The continued devaluation of the Turkish lira also had a significant impact. And within the category Others, the Japanese Yen accounted for the highest negative impact, followed by the Argentinian Peso. Moving to Slide #26. The net of interest income and expenses increased by CHF 30 million. The level of outstanding net debt increased due to the successful acquisition of Uponor in November 2023. The income tax rate went up from approximately 22% to 28%, and this was mainly caused by 2 effects. First, the GF Building Flow Solutions, where Uponor generates more taxable profit in high-tax countries such as Germany and the U.S.; and second, the additional CHF 30 million acquisition-related interest expenses are currently not eligible for tax deduction. For 2025 and going forward, we do expect the tax rate to normalize on a step-by-step basis towards a level of 24% to 26%. On the bottom line, the net profit declined by 20.8% and the earnings per share decreased by the same magnitude from CHF 1.50 up in to CHF 1.18 per share. On Slide #27, we show the free cash flow. Thanks to the acquisition of Uponor, we recorded a high EBITDA, and we implemented a number of measures to improve the net working capital management. In the first half of '24, our interest expense increased to CHF 44 million and our income taxes to CHF 52 million. But still, our cash flow from operating activities were CHF 29 million higher compared to previous year. Although we fully consolidate GF Building Flow Solutions, our capital expenditures stayed relatively low with CHF 96 million. And finally, our free cash flow before acquisitions and divestments was a negative CHF 40 million in H1 2024 compared to the negative CHF 66 million in the previous year. Let me conclude my part with some balance sheet key performance indicators on Slide #28. Due to the Uponor acquisition, our net debt position has increased to CHF 2.041 billion at the end of June 2024. Please note that the net debt-to-EBITDA multiple of 3.6x, as shown on this slide, is calculated using 12 months of Uponor's pro forma EBITDA. Our equity ratio came in at 1.7%, down from 45% in the previous year. I kindly draw your attention to that this is due to the offset of goodwill from the Uponor acquisition against retained earnings. Now the offsetting effect, our equity ratio would stand at roughly 28%. The return on invested capital for the group decreased from 21.7% to 16.8%, so it's partly due to the 14.4% return on invested capital contribution of GF Building Flow Solutions. But the main effect was clearly caused by the significant drop of GF Machining Solutions return on invested capital relating to their breakeven result. With this final comment, I now give back the word to Andy for the outlook.

Thank you very much, Mads. Let's move on to Slide 30. GF does not expect the current macroeconomic and political challenges to ease significantly in the short to medium term. However, GF remains well positioned to benefit from global mega trends, such as the demand for clean water, for energy-efficient climate solutions in residential and commercial buildings, sustainable mobility and high-precision manufacturing, as well as the expected strengthening of the semiconductor business. Positive and partly accelerated momentum in segments, such as the industry business in North America and the Chinese automotive market, as well as an expected strengthening in the semiconductor business and the ongoing strong order intake for the aerospace segment, are expected to further support the development of the group's business in the second half of 2024. In addition, the cost reduction measures will support profitability improvement. Barring any unforeseen circumstances, GF expects a solid performance for the full year 2024, with profitability in the strategic corridor that means a comparable EBITDA margin of 13% to 15% and a comparable EBIT margin of 10% to 12%. Let me now turn to my final slide. The first half of the year has been an important milestone for GF. We have successfully progressed with the integration of Uponor, the most important strategic acquisition in GF's history, in a very challenging market environment. Therefore, a big thanks goes to all our 20,000 colleagues around the world. As one corporation, GF is set to become the leader in water and flow solutions and further pioneering technologies for our customers around the world. We are now ready to take your questions.

[Operator Instructions] The first question comes from Jörn Iffert from UBS.

I would have 3 quick ones, and I will take them one by one, if it's okay. Maybe the first one, can you give us an update what you expect on organic sales growth per division, like you did in March? And also, what is happening in the construction sector when you look into the second half and 2020 at this point time? What is your best guess and Uponor will have a growth turnaround? This will be the first question, please.

All right. Thank you very much, Mr. Iffert. Coming back, we expect organic sales slightly be positive for the group in the year 2024, that means an accelerated organic development in the second half, but also compared to a rather weaker base in the second half of the year 2023. By division, we expect more or less a slight improvement in terms of organic growth with Piping Systems for the full year. We expect Building Flow Solutions to remain negatively. Also, as you mentioned, affected by the weak new build market in Europe. Just on a note the renovation and refurbishment market is to be expected to come in flat in the year 2024. We expect Casting Solutions to be all in the area where they have delivered to the mid of the year, which was a slight organic growth. And Machining Solutions to come in also more or less around a flattish growth result. We see that the Nordics will recover or at least our forecast by official statistics to have a rebound in the construction market in the year 2025, whereas major markets such as France and Germany still remains subdued. So we will see some positive impulses in the year 2025, and we do not expect that we will have a further decrease going forward.

And the second question is, please, on the cost saving program of CHF 50 million. Is this a net number? Will it be something we reinvested? And can you give us maybe the split was the full-time employees? What are just productivity improvements, automatization, et cetera?

First of all, the cost reduction program addresses the reduction of volumes as we have been experienced in the first half of the year, but also some structural adjustments. So we will see part of that one positively supporting our results. As we said, mainly this savings are a good part of these savings will come into play in the second half of the year. But once again, it is also addressing in various sites, the lower volumes.

And this is a net number? So this is including any reinvestments you do anywhere?

It is -- from that point, it's a gross number. As our CFO has illustrated, we have some one-off items to be expected on this performance program in the range of CHF 10 million to CHF 15 million.

And the last question, if I may, interesting one on the free cash flow generation, you said there is a net working capital program in place right now. What do you think is a structural benefit for your free cash flow in the years to come? Are we speaking about CHF 5 million or CHF 10 million? Is it CHF 50 million higher equity to cash flow? How should we think about this?

Thank you for the question, Mr. Iffert. On the free cash flow, we would overall confirm our guidance, as we've done in the past, around CHF 200 million to CHF 250 million for the entire group for the full year. The structural benefits, we will do a lot of, let's say, midterm improvements in the net working capital management, and it's focusing mainly on management of inventory in 2 other divisions in Piping and in Machining Solutions.

And the benefits out of this, is this CHF 10 million structural better cash flow? CHF 50 million? How should we think about this?

I mean, for this year, we definitely -- from a long-term structural measure, it's difficult to estimate what the effect will be long term. But surely, the short-term benefit would be in the area of CHF 20 million to CHF 25 million.

The next question is from Martin Flueckiger from Kepler Cheuvreux.

I've only got one left, actually. I was wondering whether you talk a little bit about the customer markets in Machining Solutions, particularly in Q1. If I remember correctly, in your presentation, you said that EDM and milling were particularly weak. I was just wondering which customer markets that pertain to? And secondly, if I just may quickly add one, I was wondering -- I was a little bit surprised by the only breakeven result in Machining Solutions. I realize that organic growth was down or organic sales were down 5%. But it's a pretty harsh operational leverage impact on earnings. Wondering if you could elaborate a little bit on that.

Thank you, much Mr. Flueckiger, I think it's a very valid question. And yes, as we said, Machining Solutions had a very, say, subdued start into the year. We have seen a double-digit organic decline in Q1, mainly on the account, as you correctly said, on our electronic discharge machine tools and also partially in our standard machining -- milling machines. The end customer segment, which have been subdued in this quarter have been more or less, once again, the information communication technology on, but there was a heavy effect in Germany. I think we should not neglect the fact that there's a resistance or hesitance to invest in the year, in the year 2024, driven by the overall political and also economical sentiment in Middle Europe. However, we have seen already an organic growth in the second half of -- in the second quarter of the first half. And that's going to create confidence also, we ended the year for higher orders on hand compared to previous year's midyear results, which gives also some good prospection into the second half of this year. The pulling effect here is now, for the first time, ICT in Asia. So we have seen a rebound in multiple markets, South Korea, but also in China, when it comes to the information communication technology. It's not a rebound, which is obviously super strong, but it is a rebound. But we see continuously ongoing strong order intakes on aerospace and also orders ready to be dispatched in the second half of the year. Yes, and with that, we share your disappointment on the performance of the division in the first half or whether we are set to achieve a decent and good performance in the second half of this year.

The next question is from Walter Bamert from ZKB.

The first question is regarding the reporting structure. So there was no change in the first half? Will there be any in the full year reporting? And do we get any guidance on the pro forma figures?

Okay. Thank you very much, Mr. Bamert. I will ask our CFO to answer this question.

Thank you very much, Mr. Bamert. The reporting structure for the full year 2014 will be remain in the same structure as we're presenting here midyear. The reason is that the ERP systems in the background, ASAP systems and the Oracle system have to be rewired. So as of 2025, we're able to report in the new operational structure?

Can we come back to the performance program? When you talk about the CHF 50 million benefits you expect by year-end, so do you expect that to be the run rate achieved at year-end? Or is that already effecting the full year and no further beneficial effect in the next year?

So this is -- as we said, it is addressing partially volume-driven reductions in our facilities. And on the other side, it's also structural changes in our setup to increase efficiency and effectiveness. So we will see also effects of that one continuously being booked in the years to come. But the CHF 50 million is a cost reduction as set for the year 2024, whereas one-off costs to be considered to offset this number.

So you say, basically, I can assume an additional CHF 50 million benefit for next year from the same restructuring program?

If you may could repeat, the audio quality was rather weak. So...

I said if the full year the CHF 50 million effect is already achievable in this year, then there will be sort of a CHF 50 million effect in the next year because then it will apply for the full year.

The CHF 50 million is the effect what we expect to be booked in the year 2024. We're going to repeat, partially, that 2024 effect is offsetting lower volumes. And the scalability of these lower volumes that will come and disappear going forward. Nevertheless, the CHF 50 million has also some one-off items this year, so that means that's the gross figure. So the net impact is a bit lower, which is a CHF 10 million to CHF 15 million one-off items affecting also caused by the performance enhancement program. So there's a net effect on reported EBIT of CHF 35 million, but the impact on the before items affecting comparability of CHF 50 million. Going forward, in the year 2025, we will see most likely in the range of 50% to 70% of this effect remaining.

Perfect. And are you happy with the geographic footprint of your production, also considering the currency effects? Or is there more of such restructuring programs or performance programs to be expected?

I think with the acquisition of Uponor, we have ideally accomplished our production setup across Europe, but also in the U.S. So we have 2 strong facilities in the U.S., which is going to support our American footprint, which is -- was a very visual and very good accomplishment. But we also have for the acquisition of Uponor acquired some East European production sites, which are being currently well integrated, but even modernized, and we also will use this production sites for various other parts of our business units within the Piping Systems division. So from that, yes, we are set and we are comfortable with the current footprint of our production.

Very good. So now I'm asking for some percentages. You mentioned the microelectronics piping business, what percentage of piping revenues is that?

It's approximately CHF 110 million in the first half of the year, and it's expected to grow in the second half over last year's performance. So overall, as we have reported last year, this is a segment in the range between CHF 230 million and CHF 250 million, and predominantly across the entire world, so from the U.S., Europe, but also heavily also in Asia.

Okay. Then to withstand in terms of revenue share of costing turbines, so both in energy and aerospace together?

That's approximately 6% to 8% of the business turnover. So we have, as we said it, some business in the IGT, which is industrial gas turbines. And we have the aerospace part of it, which is more or less half of this investment casting businesses we have.

Perfect. And then the aerospace machining, at which level are there?

Our space machining is -- has been nicely growing in the last year. As we have seen on the slide, we had an uptick here of 60%. We are now back on CHF 89 million in the first half of the year, which is just to be remarked, still below the pre-COVID level.

The next question is from Tobias Fahrenholz from Stifel.

Yes. So looking at what's left and speaking about Uponor, what's your view here on any potential inventory restocking? I mean, hopefully, the marketing is going to pick up again next year, as you say, but when would you expect to see such a support at the earliest? Might it already be in the fourth quarter? And yes, what could be the size of such a restocking when you look at historical patterns? So that would be a question on the top line. Maybe then to complete that on profitability level. I mean you closed last year's Uponor business was slightly above 12%, now you're at 10%. We have typically less favorable seasonal patterns in the second half of Q4 especially, is a 10% EBIT margin figure also margin to consider in the full year?

Thank you very much, Mr. Fahrenholz, for your question. The restocking effects, we assume are rather minor. Now since there is also, not surprisingly, net working capital optimization projects around the world, so we will most likely not see a strong amplification of these effects. Nevertheless, there will be a minor effect towards -- expected towards Q4 in various regions. But mainly we see that one when markets will pick up in second half of 2025 and subsequently in the year 2026. Let me also give you a bit light into the reported EBIT margin of our GF Building Flow Solutions business, when you compare it with the 12% reported by the formerly Uponor Corporation. There is 100 basis points reduction by converting the IFRS reporting structure in the Swiss reporting structure. And in addition, we have some PPA effects on assets, which we are not considering as items affecting comparability due to the tenor of to 10 years, that overall makes up 1 percentage point if you compare the pure Uponor IFRS figures with the GFS reported Swiss franc figures. We are confident to keep the profitability in the strategic corridor of this division, which is 10% to 12% as we have announced last year.

The next question is from Remo Rosenau from Helvetische Bank.

Yes. You elaborated on the very much different growth dynamic in Machining Solutions, with a double-digit decline in Q1 and probably more flat or slightly positive development in Q2. Now how about the other divisions? Was there also a different growth dynamic to be observed? Or was this phenomenon just strong in Machining Solutions?

No, I think it's a very good remark. And yes, we have seen exactly the same dynamics, but not to the, let me say, level as we have seen it in our machining solutions. More or less, all our divisions had a substantial better organic development in the second quarter of the first half of the year compared to the first quarter. So Corporate has been overall, in the second quarter, organically growing.

Okay. And this was particularly observable in Europe, right, and less so in other world regions?

Well, I think it was for GF, and this is also due to the multitude of end markets we are serving, more as a pattern which most likely has balanced it out. And so we have seen this effect more or less globally.

Okay. Interesting. Then another question. I mean I don't know if you mentioned that already at some stage in the past. But for how long will you now report we these comparable figures and reported figures on EBITDA and EBIT? I mean could you tell us that will only be the case for 2 years and then we stop that? Or will that then continue for nobody knows how long?

Thank you very much for the question. We expect that to last about 2 years. And after these one-off items affecting comparability, they should be all in the accounts by the end of next year.

Okay. So 2026 will be a year with no adjustment anymore?

We expect that we would be reporting back in the normal way that we've done in the past, yes.

The next question is from [indiscernible] from UBS.

I have 2. You previously guided for net debt-to-EBITDA of 2.6x or 2.7x at year-end. Do you expect this level to still be realistic? And can you kind of give some guidance on the pace of deleveraging thereafter? And the second question is you announced with the full year figures that you're looking to issue at least CHF 600 million bonds this year, is that still the plan? Is it still CHF 600 million or more? Or can you give any guidance on what this looks like?

Thank you very much for your question. Our guidance for the year-end net debt to EBITDA still remains below 3x, that's our target. That's clear. And we also expect to start working on the bond issue. It will be remaining the same, let's say, attitude of around CHF 600 million, and that will be taking place in the second half of this year.

Right. And then regarding deleveraging after 2024, can you give any information on that?

We still have earmarked around about CHF 600 million of free cash flow for the next 3.5 years to deleverage. Our ambition is, of course, ideally to get down to 1 point in -- to 1x EBITDA in the -- yes, in a couple of years. But that plan actually remains as we communicated earlier.

[Operator Instructions] The next question comes from Christian Obst from Baader Bank.

First of all, your growth targets midterm, do you still have some midterm growth targets for the divisions? And can you give us a little bit of a detail where do you currently are adjusting or reducing capacity to the market conditions currently?

Thank you very much for your question. I think we are having unchanged strategic targets, which are overall the strategic cycle, which are in the range of 3% to 5% organically. So they are not changed. And I think they are more or less valid for all our divisions. And we see years where we have a bit of different dynamics, but this is, as I said before, now due to the month and segments we are serving. So that gives for us normally a very balanced pictures and...

Hello?

Yes?

Okay. And I have another question, just concerning the invested capital again. So your ROCE calculation on Slide 28, can I see the underlying capital numbers in any place of your report? Or can you give me the numbers?

I will yield that question to our CFO.

In the report, we do not disclose it, but it's -- there is a link on the website to numbers that are showing all performance indicators. That's all explained online how we calculated that. So that's the way to figure out the number that's on our website available?

Okay. And do you also have a target -- midterm target for the return on invested capital for each of your 4 divisions going forward?

The target is that they actually all have to be above 20% over the strategic cycle.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to GF for closing remarks.

We would like to thank you very much for your interest in our cooperation, and we wish you all a successful week.

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 you lines. Goodbye.