Georg Fischer AG (GF) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Georg Fischer Midyear Results 2023 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.

Welcome and thank you for joining our midyear results conference call. Present on our side are our CFO, Mads Joergensen; Head of Investor Relations, Daniel Bosiger; Head of Corporate Communications, Beat Romer; and myself, Andreas Muller. Let's turn to Slide #2. GF was able to report good performance in the first half of the year despite challenging times. The group recorded robust organic sales growth of 7.5%. As a result of strong currency headwinds with an impact of CHF 123 million and the divestment of a light metal casting business in the U.S. in the first half of 2022, sales in Swiss francs were flat year-on-year at CHF 1.961 billion. GF increased its EBIT margin by 30 basis points to 9.4%. Also it should be mentioned that strong negative currency effects of CHF 27 million weigh on the EBIT as well. The EBIT margin landed again within the target range of Strategy '25. The current political and economic environment with high inflation and interest rates impacts several of our end markets. Construction industry worldwide and gas utilities in Europe are facing headwinds. Equipment demand in the ICT industry is sluggish and disappointing due to subdued customer demand. On a positive note, GF reduced its CO2 emissions Scope 1 and 2 by 15% and increased its sales of products and solutions with sustainability benefits by 3 percentage points to reach a total of 63% compared with H1 2022. Our Strategy 2025 with its focus on sustainability-oriented solutions for our customers is well on track. GF Piping Systems continues to expand its range of water treatment solutions, in particular with new water sensors and automation solutions. GF Casting Solutions is focusing on lightweight components for e-mobility and GF Machining Solutions' precision machine tools are contributing to greener production processes with a new series of laser texturing machines. Our recommended public tender offer for Uponor, which we announced in June, was well received. Customers and employees of both companies support the plans to combine GF and Uponor as do our investors. Slide 3, let's take a look at the sales development in the first half of the year. Sales came in at CHF 1.961 billion with an organic growth of 7.5%. GF Piping Systems increased sales organically by 4.2%. In Swiss francs, the division faced strong headwinds from exchange rates and remained therefore slightly below the sales figure of the previous year. GF Casting Solutions, organic growth of 20% was driven by higher volumes compared with the previous year. New projects were ramped up over the course of the past few months and contributed positively to the strong growth. However, let me also remind you that the first half of 2022 was marked by plant closures in Europe as a result of the war in the Ukraine as well as in Asia due to lockdowns in China. Sales at GF Machining Solutions increased 3.7% organically. Slide 4. GF increased its profitability in the first half of 2023 compared with the same period of the previous year. The EBIT margin was 9.4% within the strategic target range of 9% to 11%. GF Piping Systems' focus on sustainable value-added solutions and strong industrial end markets enabled the division to partially offset the significant negative currency effects. The EBIT margin was 13.2% compared with 14.4% in the same period of the previous year. GF Casting Solutions achieved an EBIT margin of 7.5%. The solid market position and the growing share of e-vehicle components as well as the divestment of the stake in the GF Linamar joint venture in the U.S. in 2022 were among the reasons for this margin increase of more than 400 basis points. GF Machining Solutions increased its EBIT margin to 4.7%. Profitability was impacted by low ICT volumes, but this was partly mitigated by slowly increasing sales in the aerospace segment. Slide 5. In addition to the positive development of our financial KPIs, we have reached other important milestones on the way to achieving our Sustainability Goals 2025. GF Piping Systems and GF Casting Solutions each received an EcoVadis medal in gold, an upgrade from silver received in 2022. EcoVadis is the world's largest and one of the most trusted providers of corporate sustainability ratings. More than 100,000 rated companies are part of their rating universe. Products with social or environmental benefits now account for 63% of the group's total sales. Of note, our solutions such as energy-efficient and recyclable preinsulated piping systems, are products with superior durability such as water and gas pipeline solutions. But also the increased share of lightweight components for electric vehicles and the focus on highly energy efficient and clean machine tools continue to have a positive impact. CO2 equivalent emissions were reduced by a remarkable further 15% thanks to various measures such as more efficient production processes and newly installed photovoltaic systems. Noteworthy is as well that 23% of our newly appointed managers were women. Here too, we are well on track to achieve our 2025 targets. Let us now take a closer look at the 3 divisions on Slide 6. GF Piping Systems grew organically by 4.2%. Sales totaled to CHF 1.065 billion. The division saw lower demand for its building technology products in Europe and China as well as for gas utility applications in Europe. The industrial segment with its highly fragmented, but attractive applications, continued to grow and supported the division's pleasant performance. With an EBIT margin of 13.2% and an EBIT of CHF 141 million, the division delivered a result within its strategic corridor despite a significant negative currency impact of CHF 24 million. The picture on the right illustrates one of the division's sweet spots of growth markets and sustainable megatrends, an onshore aquaculture fish farm in Norway. GF supplies sensors, valves, automation, fittings and pipes to this sustainable project. You may also recall that at our media conference in March, I presented the Intel EPIC award received for the year 2022. In 2023, GF once again received this prestigious recognition for quality and solutions. This is the first time that GF has received this award for 2 years in a row, underlining its innovation and customer focus. Another important step in the first semester 2023 was the inauguration of our site in Yangzhou, an event that had been postponed due to the pandemic restrictions. In Yangzhou, GF Piping Systems now operates a state-of-the-art production facility for piping systems, a clean room for preassembly and a training center for our customers. With this new setup, the division is ready to meet the growing demand for sustainable solutions in this important region. Let's now look at Slide 7, which illustrates 4 important end market segments for the division. Sales of products and services for microelectronics and data center applications increased by 38% to approximately CHF 140 million. GF is delivering its solutions to individual construction sites distributed over several stages so the project volume is likely to be spread over more than 1 year. The artificially inflated order intake seen in 2022 and 2021 due to the experienced severe shortage of certain raw materials is also behind us and was not recurring in H1 2023. Marine segment continued to grow and generated sales of more than CHF 30 million in the first half of 2023. In particular, our customers in this segment require for solutions that offer durability and wage reduction. GF recently launched a water reclamation system labeled SeaDrain White that meets most of these important requirements. The gas utility segment developed regionally uneven and declined by 2% in the first half of 2023. The U.S. market remained strong growing by 9% while demand for gas applications in Europe remained low. The building technology business of GF Piping Systems was affected by a subdued European market especially in Germany, but also in Turkey and China. Overall, the segment sales declined by 10% to approximately CHF 170 million. Slide 8, GF Casting Solutions. The global automotive industry started the year with a solid growth in all regions. Global car production was up by 10% in the first semester 2023 compared with the previous year. GF Casting Solutions increased its sales by 20% organically in the same period despite lower metal prices. Operating profit increased significantly to CHF 35 million, previous year CHF 14 million, resulting in an EBIT margin of 7.5% more than doubling the 3.2% reported in 2022. Sales of components for electric vehicles increased by 31%. They already account for 1/5 of the division sales in the automotive market. The share of orders received for EVs increased to 86% of total lifetime orders for high pressure die castings. Gradual recovery of the aerospace sector also had a positive impact on the division sales to this segment, which increased by more than 30%. A clear highlight for the division was the EcoVadis Gold Medal for its sustainability performance. This award positions GF Casting Solutions in the Top 4% of companies in the metal casting industry segment. The division is increasingly being recognized for its innovative strength and its ability to produce mega castings, a key differentiator in the production and assembly of cars. The plant in Shenyang, China will be one of the first to produce these plans for volume orders. Let's move on to Slide 9. One of the division's key competencies is the design and industrialization capability of complex large body and structure components. 50% of the lifetime order intake can be attributed to the strong R&D involvement at an early stage. Total lifetime order intake was CHF 645 million. Of this, CHF 433 million was for a high pressure die casting technical unit. Orders for electric vehicles continued their strong momentum and amounted to CHF 373 million or 86% of the technical unit high pressure die casting. GF customers include the Top 5 Chinese manufacturer of electric vehicles as well as the leading European OEMs. Our unique ability to design and produce mega castings on existing die casting machines has been clearly appreciated by our customers. Being able to use existing machines leads to an extension of their service life and thus to higher economic and ecological benefits. The picture on the top right shows a rear body cast for a sports utility vehicle. Let us now turn to GF Machining Solutions, Slide 10. The division benefited from the recovery in the aerospace industry and the continued strength of the medical technology segment booking orders worth of CHF 461 million resulting in a book-to-bill ratio of 1.1. Sales amounted to CHF 426 million, an organic increase of 3.7%. Sales developed positively in Europe while APAC experienced a decline of around 15% mainly due to the subdued ICT segment. The ICT market is facing weaker demand after an overamplification during COVID-19. Moreover, recent innovations did not cope with consumer expectations. GF Machining Solutions' new generation of laser texturing machines represents a cutting-edge clean technology. Its recently launched milling machines with integrated grinding functions are perfectly suited to demanding production processes. One of these sustainability applications is the production of fuel cells. Slide 11 shows the sales trend in selected end market segments of GF Machining Solutions. After 3 years of subdued sales in the aerospace segment, the division is now reporting solid growth of 22%. Nonetheless, sales of around CHF 56 million remain still well below pre-COVID levels. Medical market segment continued to grow by 34% with sales of more than CHF 50 million. The 3 competent centers for machining medical devices in the U.S., Germany and China are highly appreciated by our customers and correspondingly continue to create new business opportunities for GF. The ICT segment with its strong presence in Asia had to contend with weak consumer demand and consequently a slowdown in the capital expenditure of our customers. GF Machining Solutions reported a decline of 31% in that segment. Sales total a tad below CHF 60 million. With that, I will hand over to our CFO, Mads Joergensen, for a detailed look at our financials.

Thank you, Andy. Ladies and gentlemen, also from my side a warm welcome. I will now present the consolidated financials of the first half of 2023. On Slide 13, we present the order intake for the first semester. First, you will see that GF Piping Systems recorded an organic decline in order intake of 14%. However, the decline should be seen in the light of the abnormally high microelectronics order intake in 2022. Last year, the combination of high raw material prices increases and material shortages led to customers ordering 12 to 18 months ahead compared to a normal ordering pattern of 3 to 6 months. Furthermore, the order intake in utility and building technology was clearly weaker. GF Casting Solutions recorded the strongest organic growth in order intake of all divisions with 12.8%. This was driven by volume growth in the global automotive segment as well as a recovery in the aerospace and industrial gas turbine segment. Please also note that the order intake of CHF 488 million in 2022 still included the CHF 38 million order intake of the divested joint venture, GF Linamar. For GF Machining Solutions, the order intake grew organically by 1% in the first semester. Therefore, despite rising interest rates and uncertainty, the book-to-bill ratio in the first half came in at 1.1x. Overall, the GF Corporation reached CHF 1.925 billion in order intake with an organic decline of minus 5.1%. As you can see on Slide 14 in the last line of the table, the sales of GF Corporation grew organically by 7.5%. You can also see from the absolute development that the currency effects were substantially negative. In the first half of 2023, GF Piping Systems generated sales of CHF 1.065 billion with an organic growth of 4.2%. The division continued to benefit from strong industrial markets, especially in Asia and Europe. The utility and building technology markets on the other hand were weaker. GF Casting Solutions generated sales of CHF 471 million. And adjusting for the divestment of the joint venture GF Linamar in the previous period and for currencies, the organic growth was an impressive 20%. This was driven by the recovery of the global automotive markets, but also the market of investment castings finally started to recover and came in significantly above previous year. For GF Machining Solutions, the first half of 2023 developed positively. Sales grew organically by 3.7% to CHF 426 million and the supply chain issues were no longer a major concern. Sales of advanced manufacturing technologies and milling technologies came in stronger, the latter particularly driven by the global recovery of the aerospace industry. As pricing remains an important growth contributor, we will again show the development in the first half. And as you can see from the footnote on Slide 14, GF Piping Systems was able to pass on the cost increases to the market to the tune of 6% to 8%. For GF Casting Solutions, pricing was flattish and for GF Machining Solutions, the price adjustments were in the range of 3% to 5%. On Slide 15, we show the various components of the sales development. Starting on the left hand side with the consolidated sales of the first half of previous year of CHF 1.971 billion. At the end of March 2022, the joint venture GF Linamar was divested and the pro rata sales for January to March amounted to CHF 34 million. Moving to acquisitions with a CHF 2 million full year effect of the consolidation of the Italian service company, VAM Control, which was acquired in July 2022. Next the accumulated effects across all foreign currencies amounted to minus CHF 123 million. This is CHF 72 million worse than previous year. Finally, this leads to an organic growth of CHF 146 million or 7.5%. We now move on to take a closer look on the regional sales. On Slide 16, we show the sales per region. GF grew organically in all regions of the world. Going to the very left hand side, you can see the declining sales in Americas in absolute terms, which is mainly explained by the divestment of the joint venture GF Linamar. Overall, the organic growth of 1.2% was actually driven by GF Casting Solutions through the export from the Austrian Altenmarkt plant to the U.S. as well as a modest growth with GF Machining Solutions. The growth in Europe was mainly attributable to GF Casting Solutions and GF Machining Solutions. And moving to Asia where organic growth was clearly driven by the industrial piping systems business and the recovery of the Chinese automotive sector from the COVID lockdowns last year. The sales figure in the Rest of the World includes, among other markets such as Turkey, Israel and India. Despite the further deterioration of the Turkish lira, sales for the region could be increased to CHF 100 million. Slide 17 shows on the left hand side the EBIT in million Swiss francs. On the right hand side, the corresponding EBIT margin in percent. After a record-breaking first semester in 2022, GF Piping Systems reported an EBIT of CHF 141 million, CHF 17 million below the previous period. The division was adversely impacted by strong foreign currency losses as well as lower volumes in the utility and building technology segment. As a result, the EBIT margin reduced from 14.4% to 13.2%, however, within the strategic corridor. GF Casting Solutions achieved an EBIT of CHF 35 million, CHF 21 million above the previous period. The divestment of the loss-making joint venture GF Linamar provided a relief to the EBIT of CHF 9 million. Stronger sales as well as operational improvements at previously loss-making plants further supported the profitability of the division and the EBIT margin subsequently came in at 7.5%. The new plant in Shenyang, China was successfully started, but still ramping up production volume according to plan. The EBIT of GF Machining Solutions increased from CHF 17 million to CHF 20 million. The sale of higher margin services and advanced manufacturing machines as well as operational improvements contributed to the increased operating profit. The EBIT margin reached 4.7%, up from 4% in the first semester of 2022. At group level, the EBIT increased from CHF 179 million to CHF 184 million and the EBIT margin improved by 30 basis points from 9.1% to 9.4%, clearly within the strategic corridor. Slide 18 shows details of the currency effects compared to the previous period. The negative effects increased further. Overall, the currency effects on sales amounted to minus CHF 123 million compared to CHF 51 million in 2022. On a divisional level, GF Piping Systems was mostly impacted with a negative effect on sales of CHF 75 million and CHF 24 million on the EBIT. As it can be seen on the right hand side, all major currencies heavily dragged on sales. The biggest deteriorations compared to the first half of 2022 came from the Chinese yuan and the euro. The development of the Turkish lira was nevertheless relatively better with only CHF 15 million negative sales effect compared to negative CHF 45 million in the first 6 months of 2022. Other currency effects mainly include changes in Japanese yen, Hong Kong dollar, Swedish krona and the British pound. On the EBIT, the total foreign currency effect amounted to minus CHF 27 million. Slide 19 brings us to the income statement of the GF Corporation. As mentioned earlier, sales declined by CHF 10 million to CHF 1.961 billion. Personnel expenses increased by CHF 30 million or 5.7%. The average number of employees increased by around 4% and so did the salary levels in local currencies and hence the personnel cost ratio increased from 26.6% to 28.3%. Although the EBITDA decreased by CHF 1 million to CHF 239 million, the EBITDA margin remained stable at 12.2%. Depreciation and amortization decreased by CHF 6 million; of this decrease, CHF 4 million related to the divestment of the joint venture GF Linamar. Income taxes increased from CHF 34 million to CHF 36 million and the effective tax rate increased from around 21% to around 22%. This is mainly caused by used up tax loss carryforwards as well as withholding tax on higher dividends paid from our Chinese companies. Finally, net profit attributable to GF shareholders remained with CHF 123 million, close to previous year and the corresponding earnings per share was CHF 1.50 compared to CHF 1.53 in the previous period. Turning to Slide 20, which shows the balance sheet as of 30th June 2023 compared to 31st of December 2022. The liquidity situation at GF remained solid. The temporary reduction in cash and cash equivalents to CHF 617 million reflects the all-time high dividend payment in April, the seasonal investments in net working capital, the higher capital expenditures and to a large degree, the acquisition of shares in Uponor; the latter impacted cash by CHF 57 million negatively. The trade accounts receivable increased seasonally from CHF 660 million at year-end to CHF 707 million. Days sales outstanding went up from 61 to 64 days compared to year-end. The level of inventories grew from CHF 833 million to CHF 867 million and days inventory outstanding correspondingly climbed seasonally from 130 days to 135 days. On Slide 21, we continue with the liabilities and equity. Trade accounts payable decreased seasonally from CHF 563 million to CHF 503 million. Year-end is typically characterized by high accounts payable. Nevertheless, the days payable outstanding increased from 62 to 71, which is a typical seasonal effect from GF Piping Systems. Equity decreased from CHF 1.656 billion to CHF 1.612 billion. This decrease is mainly due to the dividend payments of CHF 109 million and negative currency translation differences of CHF 58 million. Overall, the equity ratio remained stable at 45%. Slide 22 shows the development in free cash flow. EBITDA was at the level of previous period, but the increase in net working capital was with minus CHF 165 million substantially below previous year. Investments in property, plant and equipment amounted to CHF 90 million, an increase of CHF 22 million compared to the first semester of 2022. Furthermore, you can see that we acquired Uponor shares in the amount of CHF 57 million. Please also note the CHF 61 million cash-in from the sale of the 50% stake in the joint venture GF Linamar in the 2022 figures. And hence, the free cash flow before acquisitions and divestments improved from minus CHF 98 million in 2022 to minus CHF 66 million in this reporting period. Finally, Slide 23 summarizes the key figures. Net debt increased from CHF 56 million to CHF 108 million. The net debt/EBITDA multiple increased accordingly from 0.12x to 0.21x. The return on invested capital increased year-over-year by 1.9 percentage points to 21.7% at the upper end of the strategic corridor of 20% to 22%. GF Casting Solutions also ended up within their Strategy 2025 corridor of 18% to 22%. And hence, in the first semester of 2023, all divisions clearly earned over and above their allocated cost of capital. The number of employees at the end of the period increased from 14,957 to 15,464. Now let me summarize the financial performance of the first half of 2023. In this first semester, we continued the implementation of our growth strategy and achieved important milestones in terms of profitability and return on invested capital. With a high equity ratio, the balance sheet remained more than solid. Thank you very much for your attention and I now give the floor to Andy for the outlook.

Thank you very much, Mads. Let me now move on to Slide 25. Allow me to give you a brief update on GF's voluntary recommended cash tender offer to acquire the Finnish company Uponor which, if successful, will pave the way for GF to become a global leader in the water and flow solutions business and further enhances its resilience and growth prospects. This is a transformational step for GF which, if successfully completed, will accelerate the implementation of the GF Piping Systems Strategy 2025. We continue to expect the transaction to close in the fourth quarter of 2023. The feedback we received from customers, employees and the capital markets on this public tender offer has been very supportive and favorable. As of yesterday, we were able to acquire more than 5% of the outstanding shares in the public market and together with the irrevocable undertakings already signed and committed, the acceptance level is now in the range of 43%. In addition, the U.S. antitrust authorities did not object the acquisition just yesterday on July 19. Let me move on now to Slide 26. The current volatile environment is likely to continue in the short term, but the situation varies among the different market segments. GF Piping Systems faces a subdued construction industry worldwide and gas utilities in Europe continue to experience headwinds. At the same time, the industrial segments are experiencing sustained favorable momentum worldwide. GF Casting Solutions' strong position in the electric vehicle and high-end car segments should continue to support its business also during the second half of the year. Demand for investment castings for the aerospace industry is also expected to pick up further. GF Machining Solutions remains confronted with the subdued ICT markets especially in China, but order intake in the medtech and aerospace sector is solid. Overall, GF is set to benefit from the strong position of its division in resilient market segments. In particular, our customers' sustainability needs continue to offer excellent long-term business opportunities for the group. Barring unforeseen circumstances, GF expects to achieve in 2023 both an organic sales growth in line with the Strategy 2025 target and an operating profitability within the Strategy 2025 corridor. With that, I would like to conclude our presentation and we are now ready to take your questions.

[Operator Instructions] The first question is from Walter Bamert from Zurcher Kantonalbank.

It's impressive to see the results of your repositioning of Casting Solutions division. So I have 4 questions related to that successful division. The first is, is it correct what you said about the electric cars that they account for about 15% of sales of the division?

Okay. So we take one by one. Thank you, Mr. Bamert, for this question. It is correct that our e-vehicle sales are now in the amount of the total sales of the division in the range of 15% and in the segment, which is for light vehicle cars, it is a tad above 20%.

Okay. Were there any positive oneoffs included in the profitability this time I think about compensations?

No. Also we had no particular oneoffs in the first half of the year nor in Casting Solutions nor in the other divisions.

Okay. Is there a negative or can you give a number for the Shenyang ramp? What should we expect there? What did you have in the first half?

The first half of the year was affected by ramp-up costs of this state-of-the-art facility by approximately CHF 3 million and there is a forecast in the mid of a single-digit million cost associated with the ramp-up of Shenyang for the year.

Okay. And then the last question is when you get a lifetime order, do you include the full lifetime volume in the order intake?

This is a very good question and I think it really deserves a little bit clarification. When we talk about lifetime order intake, it is the nominated volume over normally a period of 5 years being awarded by the customer to us. So the lifetime order volume is not reflected in the so-called orders intake what you see in our financial reports. The order intake displayed here is more to be considered as a call-off for the upcoming 3 months only. So this is only a 3-month period, which is considered as an order intake in our statements as disclosed in our report. I hope this was clear.

The next question is from Martin Flueckiger from Kepler Cheuvreux.

Martin Flueckiger here from Kepler Cheuvreux. I've just got 1 left. Walter actually asked a number of my questions already. So selling price developments in H1 were positive for Piping and Machining, flat for Casting Solutions. Could you talk a little bit about what kind of raw material price developments you saw in H1? What kind of trends do you expect here for H2 and what we should assume for selling price adjustments in the second half? That's my only question so far.

Mr. Flueckiger, I will hand over this question to our CFO, Mads.

The price development relating to the raw material cost for Casting Solutions, we have seen a reduction in the aluminum price on average around 6%, much more on the magnesium side. But as you know, we have a delay of around 3 months before we can charge that on or we have to move that on to our customers. So in the first half, you will probably not see so much of an impact. It will probably come more in the second half. We do not expect the raw material costs necessarily to fall further than they have right now. They seem to have leveled out at the area where they are now. But to quantify it for the second part is too early for us to do right now.

And in other raw material areas such as resins for plastics, we see a stable development at this point of time.

The next question is from Christian Obst from Baader Bank.

I have a question concerning Machining Solutions. So we have seen some kind of an ongoing upward trend in the margin from first half '20 onwards. Do you also expect that to go further on into the second half '24 or is the headwind especially from China, you mentioned the ICT headwind there, that we cannot reach the same margin that we have seen in the second half of '22? This is the first question.

Thank you very much for this question and I think it's a very good one. Let me also give a little bit background to the ICT; information, communication, technology market. This is a very dynamic market, which obviously lifts a lot from innovations, consumer inspiring innovations. Normally it's a short cycled business so the downtimes of these cycles are normally in the range of 9 to 15 months only. This is also due to the durability of this kind of products in the market. We assume that the ICT market should recover in the second half of the year 2024. And what we on a positive note have said in our outlook guidance is that the aerospace segment is picking up and winning momentum. So order intake has been strong in this segment and will allow over, say, the next month or actually even a year to supply these orders. This obviously will support the margin development going forward.

Is there a meaningful differentiation in the margin you received in the different -- from the different customers when it comes to ICT or aerospace or what else?

It's not so much relevance lastly with the customer, it's more about the technology which drives the margin. So there are various technologies, which are obviously very beneficial when it comes to automated complex ultra-precise machine tools whereas when entrance-level machine tools where obviously competition is also slightly higher than on the ultimate high-end or niche products. So it's more a product combination whether it is coming along with service packages, whether it comes along with automation. This is much more the driver of the margin.

Okay. Then I have a question or 2 questions concerning Piping Systems. So you see these or you mentioned also these ongoing recession trends when it comes to the classical construction market there and gas supply. Do you see this as some kind of a beginning or is that more that we have seen the peak and then you expect some kind of an improving going forward? This is the first question for Piping.

I think the construction market obviously behaved completely different around the world. So as we may have seen, there's a builder confidence rise in the U.S., which means that market seems to develop flattish whereas we obviously have seen Germany being hit very hard in the EU. So therefore, we don't think that this is supposed to recover quickly, but however, it needs to recover at one point of time. You may have also seen that there is a shortage of approximately 700,000 housing or apartments in Germany, an account build rate of only 150,000, 170,000 for the year 2023. So short term it's still being hit strongly. However, long term we're going to see this market very well intact. Also for us what we have observed in the first half of the year 2023 was a strong and solid Swiss market with a good performance and a more or less development on previous year's level. So is that hiked or not hiked? I think in China we would say we are bottoming out this effect and we're supposed to see some recoveries going forward most likely starting in the year 2024, but this is actually something which is obviously out of our hands.

Of course. Then directly also going to China, you stated that their production is in full ramp-up also in the new plant in Yangzhou. Do you expect any meaningful impact from that?

Yangzhou plant is positioning GF very well in this very important region. I think it is a plant which is serving predominantly the industrial end market segment. So as said, we have a clean room also there, which is geared to supply into the photovoltaic production, but also into the microelectronics market. We have a prefabrication to assemble kits for our clients. We have customer training centers. But we are also producing various parts of the industrial segment not only fittings, but also going to the next level in terms of complex products being produced here. So we are set to increase the competitive position of GF Piping Systems in this very important market.

But the question was really there's some kind of a meaningful impact also on the top line or the bottom line coming from that plant now being ramped up and not producing any kind of ramp-up costs anymore.