Huber+Suhner AG

Good morning, ladies and gentlemen. Welcome to the Media and Analyst Conference 2020 of Huber Sooner. Also a warm welcome for the first time to the participants in our webcast. So we have decided to offer two alternatives to participate in our press conference, either with physical presence here at the SIX, But also, as of now, with remote participant webcast, this is not a measure due to the coronavirus, but it definitely suits the situation quite well here. We also decided for the first time to have the conference due to the webcast in English. We have then also a chance to ask questions at the end. Please feel free to choose the language you feel comfortable with. With those pre-remarks, I am inviting you to look into the Hoover Sooner Business 2019, and I'm going to give you an overview of the business year. In a nutshell, and to start with a few key highlights, we've been able to improve our profit despite lower sales last year. Of course, the lower order and sales level doesn't satisfy us. We have had to accept the railway market with lower volumes, particularly in Asia. But we have also seen significantly lower volumes in large-scale 4G mobile infrastructure rollouts. This is not unexpected. We have actually seen the public that this is going to happen, and so it didn't catch us as a surprise. On the other side, there are also some positive notes. Radio frequency has been able to increase the volume in sales as well as in orders, while fiber optics and low frequencies were behind previously. We are coming to the details. The further down we get in our P&L, the more we are happy. So it means that we have been able to increase our EBIT margin and our net income also grew in absolute terms versus previous year. And last but not least, we were very happy about very high free operating cash flow despite very high investments and acquisitions. The good bottom line in 2019, despite the lower sales volumes, were due to well-managed costs and also an improved business mix. And the free operating cash flow is attributable to well-managed networking capital. We've seen two different patterns last year. We had a very strong start and consequently we could report very strong half-year results. We already warned in our press conference for the half-year figures that we will not be able to maintain this pace throughout the whole year and our markets proved to be more demanding clearly in the second half of 2019. In general, we can say that the industrial markets and the niches we are in, they performed quite well till the end of the year. Consequently, we could mark a jump in sales in the industrial application while communication and transportation markets declined. The growth initiatives overall developed favorably, but at varied pace and contributed to the growth overall. And the strongest region of the three main regions was Europe, that convinced with higher volumes, but was not able to offset the lower business demand from Asia. This is, in a nutshell, a few highlights. And now to the figures at the glance, you can see orders and sales as announced already end of January. We're below 2018 on orders. We managed to get just above the 800 million mark with 801 million, 12.5% behind 2018. This, for us, certainly the most disappointing KPI that we have to report today. And as I said, the lower we go in our P&L, the more convincing the result is. So that overall I would consider 2019 as a decent year for HUBZone. Net sales at 831. Here we had an 8.1% decline and operating profit where we managed to keep almost a level in absolute terms of 2018-20. And in relative terms, in percentage, we were able to grow by 0.4% to 9.7%, which is really just at the upper end of our midterm guidance of 8% to 10%. Last but not least, the net income also grew in absolute terms by 2.3%, and in relative terms, we could achieve a good 7.6%. When we look at the net sales over a five-year period, you can see that we are coming out of a strong growth period with three consecutive years with a nice growth until 2018. And as we have also pointed out several times, 2018 marked a very tough benchmark for us. So we were not able to continue the growth story in 2019. But on a five-year period, comparison basis, the 2019 result also looks quite okay. And if we take the five-year aggregated growth rate, we are at 4.2%, as you can also calculate. The same five-year analysis on EBIT shows that also on return on sales level, the 2019 result marks a quite good result overall with the 18.5 million, and particularly it is 9.7% in relative terms, which compares quite well with the past four years. I'm going now a bit more into the details, and I do that as always along the three dimensions of our business. I will start with the technology segments and here with Radio Frequency, who had the best performance in 2019. A small increase of orders and good increase of 7.7% in sales and a record EBIT of 17.1% is a very convincing performance. The growth was broadly based, particularly in aerospace and defense. We were able to develop the business further. And here the main driver were satellite components which have gone into those large-scale satellite programs. But also test and measurement, one of our core markets developed favorably with higher demand for high-quality RF connections. And here the main driver were pre-investments into 5G rollouts. And last but not least, We've been also able to complete our portfolio in the area of specialty antennas, railway antennas, and for special forces. And we've been able to acquire a part of the Coptrine business that was divested. Further, cyber optic technology segment, you may remember that this business was the main growth driver in the past, is now going through a bit more difficult times, not just from a top line point of view, but also from a bottom line point of view. And consequently, here we have a big impact from the large 4G rollouts, namely the project with Samsung in India had a big effect here on the fiber optic business last year. So the order intake went down by 21%, while net sales also shrank by 15.5%. On the other side, here we have been able, as already mentioned, As already presented at the heart here, we've been able to increase our return on sales from 5.9% to 6.6%. On the positive side, we have been able to develop the business with the acquisition conducted in 2016 further. This is the optical switch business from Pilates, which grew significantly and which also contributed to the bottom line growth And another highlight here is that towards the end of 2019, we could announce the acquisition of a sizable company active in the area of active equipment for cable TV networks and for fiber to the home. The company name was BKTEL. Their main focal area is the German market, but they also have about half of their business in other countries. And we could also see that in the market, there were first 5G mobile infrastructure rollouts starting, and we can confirm that in those newly initiated rollout Hooper Sooner, has been able to take a very strong position, which is promising for the future. Then last but not least, low frequency technology segment after an extremely strong 2018. We also had to accept here lower orders by 15% and lower sales by 7.4%. We still have been able to maintain the 8% on the EBIT, which also means a decline of 1.8% versus previous year. The main driver behind the top-line reduction were the sub-markets railway, but also conventional automotive, which developed towards the end of last year unfavorably across the globe. On the other side, we've been able to further increase drive our design in the area of electric vehicles with high voltage cables and solutions and also our high power charging solution for electric vehicles was developing quite favorably and we could defend our market leadership position in this business. When we look at the different main markets, we can see what I have said in the beginning, that industrial developed positively with a growth of 23%. And, of course, that also helped to improve the business mix and, consequently, the margin, as we have traditionally in the high-tech industrial niches, the best margins. On the other side of the scale, we see communication applications where we had clearly less sales with 21%, and also transportation business went down by 8%. If you look at the distribution among those three main market segments, you can see that communication now accounts for a bit more than a third, while the others, they contribute with 30% and 32%. which is quite a well diversified mix of applications in our portfolio. When we look at the volume by region, net sales by region, we can see the growth was in Europe with 6% while the Americas were flat. And Asia Pacific shrank by 24%. That means that we have now again about every half or about every second Swiss franc turnover in Europe, Middle East, Africa, including Switzerland, while the other two main regions account for the other half of our sales. With that, I have concluded my first part, and I would like to hand over now to Ivo Wexler, our CFO, who will guide you through the details of our financial results.

Thank you, Urs. Good morning, everyone, by now, but I also will now switch to English. A warm welcome to all of you here in the room, but also on our webcast. I'm Happy to guide you and to give you some more insights in regards to the financial performance 2019. I will start with the order intake development. You could see or we have heard minus 12.5%. So 2% can be associated to currency and copper impact to minus percentage points. And on the portfolio side, we have a small drop. A small increase, half a percentage point, this has to do with the cut in acquisition we have heard and also a short month in December of BKTL. So this means that at the end we end up with an organic decline of 11% and about half of it can be associated to the 4G rollout in India, Samsung. So half of it means 50 million plus has to do with this one individual single project with Samsung. So then on the net sales side, we see a similar picture as in the order intake. Currency in copper is also minus 2%. Portfolio is half a percent plus. So the resulting decline in organic terms is 4.6% or 40 million. Also here is the same magnitude with regard to this 4G rollout project. It's about 50 million plus has to do with this project. So in the other side means that we have seen some growth in some other areas. And you can see here, when we look at the technology segment from a sales point of view, we see a nice growth in the radio frequency of organically almost 9%. We have heard there was space defense was growing, but also test and measurement, so the industrial business as well, so nice growth on that side. On the fiber optics, this minus 15% organic decline. Here again to mention this 4G rollout project in India. And then on the low frequency side, there was an organic decline of 4%. So here the major driver was the railway market in China. When we look now at our development of the cross-margin, you could see that we could improve the cross-margin quite significantly to 36.2%. And this is due to an improved business mix. So what I mean with business mix is, yeah, we actually can sell more high margin business. In particular, the increase in RF helped us on that way. And we have also a less lower margin business. So as we know, this 4G rollout in India is a low margin business. So it was really a good development. And on top of it, we improved. As always, see what we can do to optimize our cost structure also in the production side, and that also helped to increase the margin to this good level. On the operating side, you could see it was a decline by 3 million to 223 million. However, in relative terms, it's an increase to 26.8%. He has to mention that in particular in the second half, we actually stand on the cost break because we knew and we anticipated that we see lower volumes. So there was really some cost saving initiative started in the second half of the year. And on top of it, it's worth mentioning that we have not compromised on the R&D. So we have invested 5 million more into R&D. On the other side, we could save that through lower administration costs. We now look at EBIT per technology segment. We have heard before record high numbers with regards to radio frequency with 17% EBIT margin, which is more than half of our group EBIT. Fiber optics, a small increase to 6.6 EBIT percentage points. And in lower frequency, we saw after a very strong year, a certain decline. But I think with 8%, this is still a decent EBIT margin level. The corporate cost remained unchanged at seven, so we ended up at 9.7% debit margin, so 40 basis points higher than last year. Now, the financial result, I think it was last year not so spectacular. I think we were able to limit the negative current impacts and by that increase, let's say, or have a less worse financial result compared to previous years. But now I would like to make a small excursion with you with regard to the currencies in 2020. And for those who are in the room, this slide is not printed, but it's on the online version because we have just finished it yesterday. And as you all know, I think the Swiss franc is also, let's say, corona-impacted because the safe haven correct of the Swiss francs came very early. popular again at the beginning of this year. And here to show you a little bit, compare, let's say, the most relevant currencies from a Hubert Zuner point of view. And this is just development this year, so starting from last December to early March. And you can see here the decline is from minus three to the maximum minus 17%. Now then on the right end side, I then make a small simulation for you to get a little bit of feeling of the magnitude. If I apply this early March FX figures and at the bottom you see what I applied. So for example, the euro I applied 106 and for the dollar 92.5. So obviously this can change as we all know, but I applied these numbers to the 2019 result. And if those FX numbers would remain for the whole year, or would have been the FX exchange rates for the whole year. In 2019, you could see that our reported sales of 831 were more than 50 million less, so 778. So this would be a decline of 6.4%. And on the EBIT, it would be a decline of 30 million, or in percentage-wise, minus 16%. And our EBIT margin would be 100 basis points lower, so it would not have been 9.7%, but 8.7%. And here, I just want to make you aware that, as we all know, we are still, let's say, we have an exposure to a strong Swiss franc, and that it could also hurt us going forward, depending on how the currencies will change. And, I mean, all the other things, the corona impacts... Then from a volume point of view, this is not included in this small simulation. This is pure FX exchange rate change. Good. So I go back now to better information, better 2019 impact on the tax rate. You could see we were able to reduce our tax rate quite significantly. First of all, the expected tax rate went down to 21.7%. So here the major reason was that we were able to achieve more profits in Switzerland. And within Switzerland, we were able to do a strong RF result to have more profits in the canton of Abenzell-Auseroden, where we have a lower tax rate. On top of it, also India reduced their tax rate. And so those two impacts were the major driver for this development. And then the effective tax rate is even down to 20.4%. Here, on top of it, we were able to benefit from an R&D super deduction in China, but also we could benefit that we could use some loss carry forwards in some jurisdictions from the past. The Swiss tax reform had almost no impact for us at that stage last year, but obviously going forward, we will also benefit and benefit which obviously will support us to keep this group tax rate on an attractive low level. So now, at the bottom line of the P&L, the net income, we have heard, despite lower sales, we could increase it by 1.4 million. On the EBIT side, we have less, 2 million less, but you could see at the bottom that also there, the currency and corporate effects was about approximately 3 million. This means the organic EBIT actually increased very slightly. Then a better financial result, lower taxes, ended up with a higher net income despite lower sales. One comment is regard to the investments. As already announced one year ago, we are now at a more normalized investment level. We have invested 38 million last year. This corresponds to 4.5% growth in terms of sales, in particular high investment cycle now in the RF division, which also shows growth and a nice margin. And also going forward, we will see more, let's say, 2019 levels than 2018 levels. So also now we have quite some ideas where we could invest and we will do if it really turns to be attractive for us. A short summary with regards to the financial impacts of the Becatelle acquisition. As you have heard, we have acquired them early December. So the purchase price was $52.4 million. For that, we actually received hard net assets in the magnitude of $13.5 million, ending up with a goodwill of almost $40 million, which corresponds to about 75%. With regards to cash, the cash outflow was $43 million in 2019, and there is no, let's say, deferred payment or earn-out clause in it. So, let's say, all the cash has actually already gone with regards to this acquisition. The P&L effect was still immaterial because it was only short months in December. So the balance sheet overall, there is a decline of 3% on the balance sheet in total, but with regards to the structure, there's unchanged very strong equity with a ratio of 78%, and also the cash position remained very strong. However, let's say the net working capital slightly decreased also due to the shrinking business. We have also heard it already before. Also for me personally, obviously a highlight is The cash flow development last year, you see a record high number in cash flow from operating activities of 129 million. And, yes, we have to admit that partly was also, let's say, supported by shrinking business. Nevertheless, I think it's important that also in, let's say, in these times you really convert your profits into cash. And it helped us to finance our acquisitions. Altogether, we are 49 million for cash. for Beka, Tell and Katrin, and also our increased investment plans. We financed that funding by our own generated cash flows and still ending up with a free operating cash flow of 45 million. On top of it, as you might also remember, we had a jubilee dividend last year, so also a high dividend payment, and even by that, our free cash flow was only minus 5 million at the end of the year. So that's My comment then to the dividend development, the board proposed an increase of the ordinary dividend by 7% from 1.5 francs per share to 1.6. This corresponds to a payout ratio of 50% of our group net income. And it's in line with our overall communicated dividend policy of 40% to 50% of the net income of the group. So I'm then already at the last page from my side with the financial assessment. And as you can see here, I have, let's say, four positive points, one negative. That's also the feeling when we look back into the last year. We have heard it was not our aim and it's not, let's say, positive when you have a shrinking top line. In particular, we had a negative book to build last year. to report and that will obviously then have an impact into the start in 2020. But regardless of that, we could improve our operating profitability to 9.7%. This is the upper end of our mid-term range. And supported by a lower tax rate, we were able, despite lower sales, to increase our net income. And also to position that into a medium-term view, With this result, with this net income, it's the second best net income in the last 10 years of Uber Zuno. So overall, I think we can be satisfied with this result. And then finally, as I've mentioned it before, the high cash flow, our cash conversion ability was really a highlight and allowed us to pay all the acquisitions and also our investments by our own funds. So that's all from my side at the moment. And then I'll hand over to Urs to give us some insights as regard to the outlook 2020.

Thank you, Ivo. And I'm going to give you now an outlook into the present business year. But before I do that, I am sharing with you some milestones in 2019. There were quite a number of highlights, and I just picked four from the various options. One, and some of you have been present, we could share with the public our 50-year anniversary, and we have organized a number of events, starting in Switzerland with the special events and also employee events in Winterthur, Beginning of April, then there was also a day where we invited the public to our two sites in Switzerland. And towards the end, in September and October, we went on the road with the 50-year anniversary, and we tried to connect with our customers worldwide in all areas. major regions and we also had employee events where we showed our appreciation to our most important assets which are the employees. Then a few highlights from the markets. One of our growth initiatives is the solutions and cables for electric cars. Here we have two We can report another milestone that we have been approved, that we got nomination from a European-American car manufacturer to supply customer-specific cable solution for EVs, which is a big step for us. On the acquisition side, as you could hear, we have conducted three acquisitions, two small ones from Katrine and one mid-sized acquisition, Bekatel. Here we strengthen our position in broadband communication, in particular with optical transmission technology. So we moved into the field of active equipment here. And we have quite a number of ideas how we can use that technology also in other areas. So it's basically on the edge between RF signal and optical signals. So it helps us to build the bridge between the RF technology and the fiber optic technology. And the last example is from our RF business, from the core market test and measurement, where we have a I have the S, and it's based on a patented technology, which we call rotary swaging. The benefit of this product is that we have those milestones. I leave 2019, and I'll come to the outlook 2020 with some trends in the main markets of Uber sooner. And I can summarize that from our perspective, in principle, the basic trends and the prospects remain intact. So we can say in communication, the market is still growing in general, and the growing communication market always means more connectivity, which is our business goal. So the densification of mobile networks continues and goes clearly towards higher capacity, better coverage, and also lower latency. And we can see, as already mentioned, that 5G programs pick up speed and gain momentum. And as I've already outlined, we are well positioned in those newly emerging infrastructure projects. On the other side, and that trend will continue, it's not that we will be able to maintain this 4G business on the past level, so the 5G business that is emerging will substitute to a large degree declining 4G rollouts. We also still see increasing data traffic, which drives investments into infrastructure for fixed wire line access networks, and also some specialties at the bottom of the communication market, which is the trend to use existing fiber in the gratification market is that quite often the RF signal, which is always an analog signal, is not going to be digitized and is not going to be a digital signal but remains an analog signal when being transmitted through fiber and optic transmission technology and that is called RF over fiber. That's a market which is emerging and where we are obviously also very well positioned because we master both ends of the technology needed for that transmission links. In the transportation side, Mobility is the driver, and mobility right now is obviously not increasing, but on a long-term perspective, mobility remains a key trend in our society. So we see in the railway market, which is one part of our transportation segment, we see quite good activity in the market with regard to project tenders. So we from that conclude that the market is in a healthy state. And we can say from today's perspective that the market environment in railway remains reversible, in my opinion. So the next 10 years, they will belong to electric vehicles with batteries. There are other ideas how we can go forward, but the next 10 years, I'm convinced it will be battery electric vehicles that will gain a lot of importance in the road transportation. And one important point here is that we see now quite a lot of trucks and commercial vehicles being electrified. This is a market that suits us even better. And so we will also refocus our design efforts a bit towards this commercial vehicle market. because the service life of a commercial vehicle, of a truck, is about five to ten times longer than of a private car. And so it's normal that the demand and the requirements and the specifications of the components used in a commercial vehicle are of a higher level, and that suits our differentiation requirements. So that's an information for me, for you, and for the other people that we will shift slightly, focus towards commercial vehicles, and we still continue to take in an opportunistic way also business in passenger cars as we have done in the past. When we look at the industrial market, it's a constant strive for better solutions, for lighter solutions, for more efficient solutions. And here we have several applications and niches that offer a nice growth opportunity for Huber Sooner, mainly through highly differentiated products. And we expect that market to sustain quite well. We also expect a strong momentum to continue in our test and measurement core market, as well as in a small niche, which is the wind energy market, where we supply fiber optic communication connections into wind towers. And last but not least, high power charging where we expect further growth in the US, but also in Europe and in Asia. When we then look at the main markets and their relevance for our technology segment, we can say that the fiber optic has the largest footprint in communication and I remain positive long-term for the fiber optic business as the main drivers behind the communication market remain positive. Our LF business has a center of gravity in the transportation market and also here the outlook mid to long term is quite positive with regard to an increasing mobility. And the RF business has the highest business share in industrial applications and also here the growth opportunities remain intact going forward. No event and certainly no business presentation without a few words about the coronavirus outbreak. And here I would like to say that yes, we have seen an impact in China as Huber Sooner is present in China with a large Business scope, business in terms of group sales. We have plus minus thousand people in China. First of all, a majority of those. And then we have a sales organization spread across China in various sales offices. Our headquarters are in Shanghai. We have sales New Year break by another 10 days. So the first official working day after the Chinese New Year break was February. Hoover sooner has taken all the precautionary measures applied for reopening the business on the 10th of February and got approval to do so with a reduced number of people on board at that date. also that we could pick up the production starting 10th or starting 11th of February. Since then, we have been able to make 2% of our workforce capacity, and we hope to be back to 100% by the end of March. We have been extremely lucky not to have one single case. As it looks from today's perspective, the country has gone through the worst. The challenges remain mainly on the logistics. These are struggling with shortages in logistics, and the air freight is difficult to get and to book. In principle, we had about 50% of the output in Q1 business with a contribution from the Chinese side so an impact from our global on the global supply chain where value add was coming from China with another 15 million so we expect an impact of about 30 million in Q1 on our sales What we do not know is if all the effects are gone by end of March. We hope it's the case. And what we do not know is how much we will be able to catch up. The Chinese government has promised to launch stimulus programs in various areas. And I'm quite positive that if those programs are being launched, we are able to participate in those programs as we are in areas that are very future-oriented and are very high up on the agenda of the Chinese government. What we cannot say today is what the impact will be on the global spreading of the coronavirus on Hubert Zuno's business. So we cannot estimate and we cannot judge an impact on what will happen in the rest of the world, namely in Europe, but also in the Americas. And I think we are not the only one. It's very turbulent times, and whatever you plan to say the next day is already obsolete by the time you're opening your mouth. And so I was at home yesterday reading the news, and I... was reading about Italy closing down all the borders, basically, and preventing people from moving around except for going to work. And, you know, those kind of things, it goes without saying, will have a severe impact, first of all, in the areas where those measures are being implemented, but then secondly also on a global scale. And we don't know today what's going to happen tomorrow and what the impact will be. That leads me to the outlook 2020. And as far as our net sales guidance for 2020 is concerned, We can say, and here I refer to Ivo Wechsler's statement, we can see that the lower order intake, particularly in the second half of 2019, will have an impact on the reporting year. So we will have a rather restrained start into the current year. The measures against the coronavirus I just elaborated on. the impact in the Chinese market is guaranteed. And we have two impacts. So the impact is twofold. First of all, on our local business, but also on global supply chain. What we can also say is that we have headwind from a strong Swiss franc as the development of all major currency versus the Swiss franc is unfavorable for Huber Sooner. And at this point, it's very unclear how the geographical expansion of the corona epidemic will impact our global business. For this reason, we refrain from specifying a sales outlook at this stage, and we will get back to the public with more details when we present our half-year results end of August. As far As our profitability objective is concerned, the aim remains unchanged to achieve an EBIT margin within the medium term target range of 8% to 10% for the full year 2020. And it goes without saying that under the present market conditions, that is a challenge. With those words, I finished the official presentation and we are coming to a Q&A session which we will structure in the following way. The first chance to ask questions is given to the people public or present here in the room. And when there are no further questions from the room, I will hand over to the people in the webcast, and we will then also try to answer the question of the people that participate remotely to our press conference.