CEO Interview

“Well on track towards our goals”

Yves Serra, CEO

Mr. Serra, in 2016, GF has started the implementation of its Strategy 2020. How satisfied are you with the progress?

It has been a promising start. All relevant financial figures have been further increased and are in line with the target ranges we announced in February 2016. Today, all three divisions of GF generate a high amount of value for our shareholders. Furthermore, visible progress has been made regarding our key strategic thrusts. We are well on track towards our goals.

Could you give us a few examples of this progress?

In Europe, for example, we further optimized the efficiency of our factories. A key factor behind this is the continuous automatization of our manufacturing processes, especially at GF Automotive, where robots have been and will be installed to handle tasks too dangerous or cumbersome for our employees, such as heavy loads or the transport of hot components. Furthermore, we are step-by-step shifting the portfolio of our three divisions towards businesses that generate more value for our customers as well as for our shareholders.

What does that mean in concrete terms? What have the divisions done in order to generate more value for customers?

At GF Piping Systems, we developed pre-insulated polyethylene based systems for the transport of cooling media for air-conditioning. Our innovation called COOL-FIT 2.0 allows our customers to reduce the installation time by half and energy use by one third whilst offering lower costs than existing metal-based transport pipes, which require a cumbersome on-site isolation, and are prone to corrosion and condensation.

At GF Machining Solutions, we extended our technology portfolio by developing and launching femtosecond laser machines able to structure surfaces in any way our customers would like, offering the possibility to replace chemical etching or manual texturing processes used for the production of camera lenses or in watch-making.

Teamwork has become a very important part of our culture, which we will continue to nurture.

How important is the topic of innovation for GF?

For a Swiss company like GF, faced with a very strong home currency, innovation is our lifeblood. In this respect, I would like to thank our customers whose input and feedback guide our innovation efforts. In a very real sense, our customers are our best R&D engineers.

In your opinion: What is the most important ingredient for success at GF?

It is the commitment and collaborative spirit of our employees worldwide. Our strong teamwork across borders has been a key factor behind the greatest successes we have had, owing to a better understanding of our customers and a quicker response to their needs. Teamwork has become a very important part of our culture, which we will continue to nurture.

The GF Executive Committee from left to right: Josef Edbauer (Head of GF Automotive), Joost Geginat (Head of GF Piping Systems), Yves Serra (CEO), Andreas Müller (CFO), Pascal Boillat (Head of GF Machining Solutions).

CHF million	2016	2015

Leasing obligations up to 1 year	16	17
Leasing obligations 1 to 5 years	37	41
Leasing obligations over 5 years	11	12
Operating leases (nominal values)	64	70

Liabilities relating to financial lease contracts in the amount of CHF 9 million (previous year: CHF 7 million) are mainly due to the leasing of the machines by GF Piping Systems and GF Automotive. The leasing obligations are included in “Other financial liabilities at fixed interest rates” and are disclosed in note 13.

1 Principles

1.1 General

These annual financial statements were prepared in accordance with the provisions of the Swiss accounting law (Title 32 of the Swiss Code of Obligations). The main valuation principles applied that are not prescribed by law are described below.

Georg Fischer Ltd, Schaffhausen (Switzerland), reports its consolidated financial statements based on a recognized standard (Swiss GAAP FER) and, in accordance with the legal provisions, the company has decided not to provide notes on the audit fees, a cash flow statement or an annual report.

1.2 Securities with market price

Securities held for the short term are valued at the market price on the balance sheet date. No equalization reserve has been created.

1.3 Loans to Corporate Companies and other financial assets

Loans granted to Corporate Companies and other financial investments in foreign currencies are valued at the market rate on the actual closing date. Unrealized currency losses are booked, while unrealized gains are deferred (imparity principle). The valuation is at nominal values, taking into consideration any value adjustments required.

1.4 Investments

Investments are valued in line with the principle of individual valuation. In addition, further flat-rate value adjustments can be applied.

1.5 Dividend income

Dividend income is booked when paid out.

1.6 Share-based compensation

More information about share-based compensation is available in the compensation report as well as in note 6 of the Annual Report.

1.7 Long-term interest-bearing liabilities

Interest-bearing liabilities are recognized at nominal value.

2.1 Cash and cash equivalents and short-term investments with a quoted market price

This balance sheet position contains securities in the amount of CHF 3.3 million (previous year: CHF 3.5 million).

2.2 Other current receivables due from Corporate Companies

The balance sheet position includes short-term receivables and loans to Corporate Companies and positions from cash pooling with Corporate Companies. These are reported as a gross amount under “Other current receivables due from Corporate Companies” and “Short-term interest-bearing liabilities due from Corporate Companies”.

2.3 Loans to Corporate Companies

The activities of Corporate Companies are, whenever possible and suitable, financed by loans from the Corporation instead of credit facilities from local banks.

2.4 Investments

Direct and indirect investments in Corporate Companies of Georg Fischer Ltd include the companies listed in note 32 of the Annual Report.

2.5 Short-term interest-bearing liabilities due to Corporate Companies

This balance sheet item includes short-term liabilities and loans from Corporate Companies and items from cash pooling with Corporate Companies. These are reported as a gross amount under “Other current receivables due from Corporate Companies” and “Short-term interest-bearing liabilities due to Corporate Companies”.

2.6 Accrued expenses and deferred income

Accrued expenses and deferred income largely comprises variable compensation for employees and fees for the Board of Directors.

2.7 Long-term provisions

This provision mainly concerns currency risks.

2.8 Share capital

As of 31 December 2016, the share capital amounted to 4ʼ100ʼ898 registered shares at a par value of CHF 1.

Conditional capital: As of 31 December 2016, the conditional capital amounted to CHF 0.6 million and can be created by exercising conversion or option rights granted in connection with debenture loans or similar bonds of Georg Fischer Ltd or its Corporate Companies that were issued on the capital markets.

Authorized capital: In accordance with the resolution of the Annual General Meeting of 23 March 2016, the Board of Directors is authorized to increase the share capital, until no later than 22 March 2018, by a maximum amount of CHF 0.6 million, by issuing a maximum of 600ʼ000 fully paid-in registered shares with a nominal value of CHF 1 each. The increase may be made in partial amounts.

The maximum amount of the authorized or conditional capital is reduced by the amount that authorized or conditional capital is created through the issue of bonds or similar debt instruments or new shares.

2.9 Reserves for treasury shares

Georg Fischer Finanz Ltd, a Corporate Company held by Georg Fischer Ltd, owned 12ʼ338 registered shares of Georg Fischer Ltd on the balance sheet date. Accordingly, a reserve for treasury shares was set up at Georg Fischer Ltd.

4.1 Full-time equivalents

As of 31 December 2016, Georg Fischer Ltd employed 60 people.

4.2 Contingent liabilities

CHF 1’000	2016	2015

Guarantees and pledges in favor of third parties:
Guaranteed maximum amount	1’787’263	1’572’503
Thereof utilized	940’168	733’118

Georg Fischer Ltd bears joint liability with regard to the Swiss Federal Tax Administration for the amounts due of value-added tax of all the Swiss Corporate Companies.

4.3 Pension fund obligations

At year-end 2016, pension fund obligations amounted to CHF 4 million (previous year: CHF 1.5 million).

4.4 Significant shareholders

An overview can be found in the chapter Share price of the Annual Report.

4.5 Shareholdings of members of the Board of Directors, Executive Committee, or persons related to them

Information on the shareholdings of members of the Board of Directors, Executive Committee, or persons related to them is provided in note 29 of the Annual Report.

13 Interest-bearing financial liabilities

Net debt, which is calculated as the difference between interest-bearing liabilities and the cash, and cash equivalents, and marketable securities, decreased by CHF 24 million to CHF 214 million in the year under review (previous year: CHF 238 million). The reason for this decrease is primarily the high free cash flow, in the amount of CHF 135 million. This was offset by the dividend payment to GF shareholders and minority shareholders amounting to CHF 89 million (previous year: CHF 77 million).

Interest-bearing financial liabilities consist of the following items:

CHF million	Within 1 year	Up to 5 years	Maturity over 5 years	2016	Within 1 year	Up to 5 years	Maturity over 5 years	2015

Other financial liabilities (at fixed interest rates) 1	16	72	19	107	17	73	33	123
Other financial liabilities (at variable interest rates)	129	5		134	141	6	1	148
Bonds (at fixed interest rates)		150	373	523	200	150	149	499
Loans from pension fund institutions	29			29	27			27
Total	174	227	392	793	385	229	183	797

1 This category comprises other financial liabilities with a fixed interest period of more than three months.

In order to secure non-current liabilities, assets valued at CHF 16 million (previous year: CHF 16 million) were pledged or assigned as collateral. These assets consisted of property, valued at CHF 2 million (previous year: CHF 2 million) and buildings valued at CHF 14 million (previous year: CHF 14 million).

Further information on pledged assets can be found in note 22.

The table below shows in detail the various categories of other financial liabilities by currency and interest rate:

CHF million	Issuing currency	Range interest rate %	2016	Issuing currency	Range interest rate %	2015

Other financial liabilities (at fixed interest rates) 1			107			123

	CHF	1.1–3.5	22	CHF	1.1–3.5	22
	EUR	2.5–5.0	64	EUR	4.7–5.1	73
	CNY	6.1–7.6	13	CNY	6.1–7.6	14
	Other	4.3–13.3	8	Other	4.3–13.3	14

Other financial liabilities (at variable interest rates)			134			148

	CNY	3.9–5.3	74	CNY	5.0–6.0	54
	TRY	12.6–14.5	23	TRY	9.2–14.7	63
	EUR	1.0–2.0	32	EUR	1.1–2.0	25
	Other	0.0–9.3	5	Other	0.0–17.3	6

Bonds (at fixed interest rates)			523			499

Bond (Georg Fischer Ltd) 3 3/8% 2010-2016 (12 May) Nominal value: CHF 200 million				CHF	3.7	200
Bond (Georg Fischer Finanz AG) 1 1/2% 2013-2018 (12 September) Nominal value: CHF 150 million	CHF	1.6	150	CHF	1.6	150
Bond (Georg Fischer Finanz AG) 2 1/2% 2013-2022 (12 September) Nominal value: CHF 150 million	CHF	2.6	149	CHF	2.6	149
Bond (Georg Fischer Finanz AG) 7/8% 2016-2026 (12 May) Nominal value: CHF 225 million	CHF	0.9	224

Loans from pension fund institutions			29			27

	EUR	6.0	25	EUR	6.0	26
	CHF	2.0	4	CHF	2.0	1

Total			793			797

1 This category comprises other financial liabilities with a fixed interest period of more than three months.

In the year under review, the issue of a ten-year bond of over CHF 225 million allowed GF to improve the balance of the maturity structure. In addition, GF was able to benefit from significantly better conditions for this transaction.

GF has the following syndicated loan:

Debtors		Term		Credit		Thereof utilized
Georg Fischer Ltd/Georg Fischer Finanz AG		2015–2020		CHF 250 million		CHF 0 million

The syndicated loan gives GF the necessary financial security to be able to act swiftly in the event it wishes to make acquisitions. This line of credit was not drawn on in the year under review. In addition to other terms, the loan is subject to covenants with respect to the net debt ratio (ratio of net debt to EBITDA), the interest-coverage ratio (ratio of EBITDA to net interest expense), and the equity ratio (ratio of equity to total assets). The loan has additional terms such as are usual for a syndicated loan. Due to the improvement in EBITDA compared with the previous year and the low level of net debt, the expense relating to this loan could be further reduced.

The bonds placed on the market as well as the syndicated loan are subject to the usual cross-default clauses, whereby the outstanding amounts may all become due if early repayment of another loan is demanded of the company or one of its main Corporate Companies owing to a failure to meet the credit terms. As of the balance sheet date, the effective credit terms had been met.

The interest-bearing financial liabilities also include loans payable to employee benefit plans in the amount of CHF 29 million (previous year: CHF 27 million).

9 Categories of financial instruments

The following table shows the carrying amount of all financial instruments per category. For details on the market values of the bonds, see note 13.

CHF million	2016	2015

Financial instruments (assets)

Cash and cash equivalents (excluding fixed-term deposits)	511	507

Fixed-term deposits	60	42
Other financial assets 1	8	11
Trade accounts receivable	666	640
Other accounts receivable 2	23	24
Accrued income	21	19
Loans and receivables stated at amortized cost	778	736

Marketable securities	3	4
Funds	1	1
Financial assets recognized in income statement at market value	4	5

Derivative financial instruments for hedging purposes	4	5

Financial instruments (liabilities)

Other financial liabilities	241	271
Trade accounts payable	470	420
Bonds	523	499
Other current/non-current liabilities 3	77	90
Accrued liabilities and deferred income 4	218	198
Liabilities stated at amortized cost	1’529	1’478

Derivative financial instruments	23	36

1 Relates to loans to third parties, security deposits, and long-term-invested securities for the settlement of pension liabilities. For more details, see note 10.

2 The balance sheet item “Other accounts receivable” includes tax credits. For more details, see note 6.

3 The balance sheet item “Other current/non-current liabilities” includes derivative financial instruments. For more details, see note 15.

4 For more details, see note 16.

The carrying amount of the securities and listed non-controlling interests recognized at their fair value is determined on the basis of the share prices at the balance sheet date. The market value of the foreign exchange contracts on the balance sheet is determined by the replacement value at the balance sheet date.

11 Deferred tax assets and liabilities

Deferred tax assets and liabilities relate to the following balance sheet items:

CHF million	Tax assets	Tax liabilities	2016 net	Tax assets	Tax liabilities	2015 net

Investment properties		7	–7		8	–8
Property, plant, and equipment for own use	11	37	–26	13	41	–28
Intangible assets	3	1	2	3	1	2
Tax loss carryforwards	5		5	7		7
Inventories	26	15	11	26	14	12
Provisions	16	4	12	16	3	13
Other interest-bearing liabilities	4	2	2	2		2
Other non-interest-bearing liabilities	33	8	25	38	7	31
Other balance sheet items	14	3	11	10	3	7
Total	112	77	35	115	77	38

Offsetting	–32	–32		–32	–32
Deferred tax assets/liabilities	80	45	35	83	45	38

Deferred tax assets and liabilities are offset within Corporate Companies when there is a legally enforceable right to offset current tax assets against current tax liabilities and the deferred taxes relate to the same fiscal authority. The effect of offsetting at the Corporate Company level amounted to CHF 32 million (previous year: CHF 32 million). Deferred tax assets and liabilities are calculated based on the actually expected income tax rates for each Corporate Company. For further information on the recognition of tax loss carryforwards, see note 28.

Temporary differences associated with investments in subsidiaries, for which no deferred tax liabilities have been recognized, amounted to CHF 378 million as of 31 December 2016 (previous year: CHF 355 million).

			2016			2015
	Quantity	Transaction price (Ø) in CHF	Purchase cost (Ø) in CHF million	Quantity	Transaction price (Ø) in CHF	Purchase cost (Ø) in CHF million

As of 1 January	8’635	652.63	6	14’673	622.33	9

Purchases	20’467	820.60	17	20’104	663.58	13
Disposals	–6’785	811.92	–6	–17’715	663.63	–12
Transfers (share-based compensation)	–9’979	705.24	–7	–8’427	629.09	–5
Changes in share price						1
As of 31 December	12’338	834.00	10	8’635	652.63	6

As of year-end 2016, GF held 12ʼ338 treasury shares with a par value of CHF 1 (previous year: 8ʼ635 registered shares). In the year under review, 20ʼ467 treasury shares were purchased on the stock market at an average transaction price of CHF 820.60, and 6ʼ785 treasury shares were sold on the stock market at an average transaction price of CHF 811.92.

According the compensation model for the Board of Directors, members receive a fixed number of Georg Fischer registered shares. In accordance with the long-term incentive plan, members of the Executive Committee are entitled to a fixed number of restricted Georg Fischer registered shares (RS) and a number of performance restricted Georg Fischer registered shares (PS). The vesting of the performance restricted shares (PS) is based on an assumption of Earnings per Share (EPS) – values over prospective three years. Based on a plan defined by the Board of Directors, a fixed number of Georg Fischer registered shares are granted to members of senior management as long-term financial incentive.

Of the 12ʼ388 treasury shares (registered shares) held by GF as of year-end 2016, 7ʼ704 registered shares are foreseen for share based compensation of Executive Committee and members of senior mamangement.

The allocation for the share-based compensation is based on the relevant plan regulations. The share-based compensation for members of the Board of Directors, for the Executive Committee as well as the registered shares for the members of the senior management are stated at fair value and recognized as an expense at the allocation date. Such compensation is recorded under “Operating expenses” (see note 24) for the Board of Directors and under “Personnel expenses” (see note 25) for the Executive Committee and senior management. The total expense for the share-based compensation plans is CHF 8 million (previous year: CHF 6 million).

29 Related parties

Related parties include members of the Board of Directors and the Executive Committee, employee benefit plans and major shareholders as well as the companies under their control. Transactions with related persons and companies are generally conducted at arms’ length.

The members of the Board of Directors are compensated by a fixed number of Georg Fischer registered shares, and a fixed fee paid in cash, which varies according to their function (chairman, member of standing committees, etc.).

The members of the Board of Directors received cash compensation of CHF 1.2 million in the year under review (previous year: CHF 1.2 million). In addition, a total of 1'501 Georg Fischer registered shares (par value of CHF 1) with a market value of CHF 1.3 million were allocated as share-based compensation (previous year: 1'534 Georg Fischer registered shares, equivalent to a market value of CHF 1.0 million). Together with other benefits, the total compensation paid to the Board of Directors in the year under review amounted to CHF 2.5 million (previous year: CHF 2.3 million). The total compensation of the Board of Directors is recognized in the operating expenses (see note 24).

In the year under review 2ʼ126 Georg Fischer registered shares (1ʼ063 restricted shares and 1ʼ063 performance shares) with a total value of CHF 1.8 million, based on a share price of CHF 834 at year end 2016, were granted to members of the Executive Committee and thereof 1ʼ063 Georg Fischer registered shares were transferred (previous year: 2ʼ050 Georg Fischer registered shares with a total value of CHF 1.4 million). In addition, the members of the Executive Committee received cash compensation plus social security and pension contributions of CHF 6.5 million for the year under review (previous year: CHF 6.3 million). The total compensation of the Executive Committee is included in the personnel expenses (see note 25).

Apart from the regular compensation paid to the Board of Directors and the Executive Committee, and the regular contributions to the various employee benefit institutions, no transactions were conducted with related persons or companies.

The total compensation paid to the Board of Directors and Executive Committee breaks down as follows:

CHF 1’000	2016	2015

Compensation	6’470	6’309
Employee benefit payments	838	817
Social security	511	507
Share-based compensation	3’024	2’434
Total compensation	10’843	10’067

Additional fees and remuneration

No member of the Executive Committee or the Board of Directors or any persons related to them received any fees or other compensation for additional services to Georg Fischer Ltd or its Corporate Companies in the 2016 financial year.

Loans to members of governing bodies

Neither Georg Fischer Ltd nor its Corporate Companies granted any guarantees, loans, advances, or credit facilities to members of the Executive Committee or the Board of Directors or to any persons related to them.

The detailed disclosure of the compensation and shareholdings of the members of the Board of Directors and the Executive Committee in accordance with Swiss law can be found in the financial statements of Georg Fischer Ltd in note 6.