Competition from China and OEM pricing pressure may spell trouble for one of the largest suppliers of automotive cast parts – Georg Fisher AG’s Automotive Products Group.
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The Swiss group appears to have stumbled this year. But a closer look shows that that Automotive Products Group has a good chance to recover. It is big enough to go global with its customers and it can grow in China, too. It can also transfer critical technology that ensures international quality standards are met.
Automotive Products Group has a lot going for it – and Fischer is impatient for improved profitability. As the No. 1 supplier of highly stress-able cast components in iron and light alloy in Europe, APG supplies most leading OEMs, including Mercedes-Benz, BMW and Porsche and a handful of tier 1 suppliers.
Georg Fisher’s automotive operations generated sales of 1.4 billion Swiss francs in 2002 and EBIT of 42 million Swiss francs. In the first half of 2003 sales improved a further 12.6% to 794 million francs while EBIT was 31 million, a 41% jump that took the margin to just under 4%.
But cracks have appeared. Despite the first half growth in sales and earnings, APG admitted that recent capacity expansion may have been premature. Some new product launches had to be delayed. Then volumes proved lower than expectations as OEM customers grew cautious.
This and fast-accelerating scrap-metal prices jacked up short-term costs and capped margin growth. These developments, along with poor results in some of Georg Fischer’s non-automotive core operations, have triggered impatience among the company’s senior executives.
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By GlobalDataThe result is a recently announced ‘comprehensive structural program’ that will run through the end of 2004. The plans calls for improving group EBIT by 100 million francs in the 2005 financial year compared to 2002. 44 million of the gain will come from structural projects, 25 million from streamlining business groups and 24 million from lower-cost sourcing.
APG plans to cut net financial debt by 300 million Swiss francs by the end of 2005. It will also boost the capital base through asset disposals and a new subordinated convertible bond designed to pull in 120 to 150 million francs.
Georg Fisher CEO Kurt Stirnemann has a simple message that shareholders always love to hear: “We do not want to simply wait for an improvement in the economy. We have therefore decided to carry out a number of measures, which will sustainably strengthen our profitability.”
The upshot for the automotive business is already evident and an action plan is in place. The Bitterfeld, Germany, foundry, acquired with the purchase of mb Guss Metallbearbeitung Friedrichshafen in 1999, will be closed in 2004 when production is shifted to Herzogenburg, Austria.
On October 12, APG announced the phased closure of another foundry through 2004 – this time an APG iron foundry in Lincoln, UK. Further measures can’t be ruled out. Georg Fischer hasn’t detailed how the targeted 100 million franc EBIT improvement will be spread among its divisions. But APG will undoubtedly benefit.
APG’s longer-term prospects still appear good. The company has long been a technology leader in castings and has added magnesium casting to its range of expertise. OEMs continue to switch from assembled parts to integrated cast components and APG is seeing growth in North America and Asia.
The two strategic thrusts for the division remain a larger number of cast components per vehicle and expansion in China. APG already has a facility in China, a low-cost plant that looks set to gain from mushrooming demand in the region.
Local producers will also compete aggressively for this business but APG should benefit from its technology leadership and existing OEM customer base.
