Huber+Suhner AG

Good morning and welcome ladies and gentlemen to the presentation of our half year results 2021. A very warm welcome to the attendees here at the sixth convention point. I can tell you that it's always much nicer to have some faces in front of us that we can talk to and not just talk to the camera. We will share with you in the first section an overview of the half-year results of Huber Sooner 2021, followed by a deep dive into the financial results presented by our CFO, Ivo Wexler, and I will then share an outlook for the remainder of the year with you together. We will then have a Q&A session on the financial results before we dive into the focus topics. This is something we do always at the half-year presentation. I will share with you a special insight into our new organization, which is operational since the beginning of this year. And we will share with you also some highlights of our first full-fledged sustainability report, which we have just issued beginning of July this year, covering 2020. We can say that our company stands at a completely different point compared to a year ago. A year ago, we had to present figures which were heavily impacted by the COVID pandemic. And also the outlook was scattered as we didn't know how the economy would develop over the next few months. It was with certain concerns that we shared the outlook and it was a fact that still the second half of 2020 was affected by COVID-19 measures across the globe. I can share with you that since beginning of this year, and with very short notice, the pattern in most of our markets have changed completely. And so after the first six months in 2021, we can present now very strong figures to the public. In particular, order intake developed very strongly and consistently on a very high level throughout all the six months of the first half year and also sales followed. All three market segments have contributed to the significant increase, so it is a very broad-based upswing in most of our markets. Following the strong development on the top line, also profitability has markedly increased and we can report after six months EBIT and also net income, which have doubled in absolute terms compared to a year ago. I mentioned that we will have a closer look at our new organization. We have a community that follows Huber Sooner very closely since many years, and they are familiar with our technology organization of the past, and I would like to explain in a few words why and how we have changed the organization from a technology-oriented organization into a market segment. oriented organization this has been implemented first of january and we can say that it came together with the sharp optic of our business volumes which is not always the easiest thing and if you had an idea what's coming in the future obviously such changes would not implemented when the market is booming to the extent that we have experienced it in the last six months but I have to say that our organization was extremely flexible and people have adopted extremely well to the new organization to the new functions and processes and we have been able to master the upswing in the market quite well. When we look at the figures at a glance, we can see, as already mentioned, that order intake has increased by almost 25% to a level close to 500 million, while net sales has increased by 12.7% to 424 million. The profit, as mentioned in absolute terms, more than doubled. And in percent, the EBIT margin reached a level clearly above our midterm guidance and stands at 12.2%. And net income, just slightly under the double-digit mark, stands at 42 million, which corresponds to 9.9%. Usually at this stage, I share with you our three dimensions of our business, the famous Hooper Sooner Cube. And for the first time this year, we report the figures not according to the technology divisions, but to the market segments. And we have changed basically the reporting pattern and the global consolidation from technologies to market segment, which corresponds to a 90 degree swing in the cube. We still look at the three dimension of this cube and you get an overview here on this chart. On the left side, our split by market segment. It's a very balanced distribution, we can say, with communication being the largest market. corresponding to 39%, while the industry market accounts for 32%, and the smallest market segment in today's reporting structure is transportation, with just 3% below industry at 29%. The old view in the middle by technology also shows a well-balanced distribution between RF, F4 and low frequency. And we have F4 here still remaining at the 39%, which is equal to communication. By region, you can see that more than half of our sales is achieved with European customers while the Americas stands at 24% and Asia accounts for 22% of our business. We will come to the development of each of those segments at the later stage in the presentation. Looking at the industry segment, We have a new benchmark in our group when it comes to profitability. In the first six months of 2021, the industry segment developed really well, which is expressed in a strong growth of 18% on sales and 24% on orders. at a record high EBIT margin of 21%. This means that more than half of our profit is coming from the industry segment on EBIT level. We have to admit that we have experienced an industrial environment which was very favorable in the first six months on a very broad scale. Our largest market test and measurement and aerospace and defense have benefited from various positive trends in the test and measurement market vertical. The 5G related testing capacities have been expanded following the accelerated rollouts of 5G equipment in the field. And in aerospace and defense, the growth was driven by the increasing demand for security. Also, a smaller niche that we serve, which is reported under the industry segment, is our fast charging for electric vehicles. And this market vertical has developed extremely favorably in the first six months, as well as the wind power market, which also falls under the industry segment. Just to remind you and to build a bridge to the old reporting structure, the industry segment includes about two-thirds of the volume achieved by RF or radio frequency or high frequency products. The communication segment has the highest jump, not in volume, but in profitability. But also net sales grew by 11% double-digit. Order intake also points high at 191 million, which corresponds to a growth of 20%. But the biggest leap we can report in the communication segment on the bottom line, where we have now finally achieved a double-digit EBIT margin, you remember. Here in the communication segment, the dominant technology is EFO. EFO had a history of double-digit EBIT in the past, dropped below the 10% for three or four years in a row. And we have always pointed out that the potential is there, that EFO returns to the double-digit operating margins, which now stands at the basis of the leap in EBIT of the communication segment. When we look at the different market verticals here, we can say that there is a sharp pickup of business for the expansion of 5G mobile networks. And that has been blocked somewhat by constrained rollout activities as a result of pandemic restrictions. but that has been now released and we see that 5G is deployed on a broad basis in the Western world and step by step also in emerging countries. At the forefront of this development we have North America where we have a significant upward trend reported in the communication segment and here it's mainly North America and not South America. Not everything is perfect. There are also some negative points in the communication segment, particularly that our business with communication equipment manufacturers is developing at this stage below expectations, while again on a positive note, the data center growth initiative has again contributed positively to to the growth and to the bottom line. Our last segment, the transportation segment, has two main market verticals. It's the automotive market and the railway market and we could note in the first six months of this year that these two market verticals have developed quite differently. The automotive market has gained strength again after the decline already in 2019 and the pandemic related lower volumes in 2020, while in railway we still see some projects being pushed out and delayed. So what helps in this segment is that automotive has grown sharply and more than compensates the decline in railway, but also in railway we see a hesitancy to push very hard new rolling stock programs while refurbishment programs they develop quite favorably and they include quite often an onboard communication package which is one of our strongest application and we can benefit from this trend in the area of onboard solutions. The business for conventional vehicles has returned, as I said. This represents just a small niche and a small fraction of our sales, but our focus on the electrification and there on the high voltage circuit in electric vehicles shows now really first results and pushes our automotive business to new highs. We also have quite considerable pre-investments in new and innovative applications which include in-car communications and data links in cars as well as sensors for autonomous driving. Those initiatives consume relatively high pre-investments so that we can see it also here on the bottom line which is at 6.4% operating margin and on that level at the lower end of our expectation. What is definitely the highlight in this segment when it comes to the figures is the very high book-to-bill or with other words a much higher order intake than sales. order intake rose by 31% compared to a year ago. This concludes the details on our new reporting segment. You can see here now again the overview of the new market segments. We have industry growing by 18%, communication with 11%, and transportation stands at 10%. The view based on the three technologies on Wales, a different picture, which may surprise a bit here is that RF grows only at 4%. If you remember, I mentioned that two-thirds of the industry. Volume comes from the RF technology and industry grew clearly double digit but it means that we have a decline on RF in the communication market which is not really a surprise to us, but it also means that applications with fiber optics and with LF in the industry segment grew. F4 stands at 20% growth and LF technology grew at 12% in the same period. Look at the sales regions. This closes where our growth driver is from a geographical point of view. In the middle, you see Americas, where we have been able to grow the business by more than 50% compared to Europe. A year ago, while EMEA grew with 11% and Asia Pacific is still not a very strong growth driver for our business. In fact, we have less business, 8% less business in Asia Pacific the first six months compared to a year ago. With that, I have already concluded my overview, and I would like to hand over to Ivo Wechsler, who is now going into the details of our financial results.

Thank you, Urs. Also a warm welcome from my side to all people in the room, but probably also to all, let's say, which are listening online to our presentation. I'm happy to share some more financial insights with you for the very strong half-year result we can present. And I start with the order intake. You can see here that we almost grew by 100 million and the far majority comes from organic growth with 92.5 million or 23%. And you can see that all three market segments, so IN stands for industry, COM for communication and TRA for transportation. So all three market segments contributed between 21% and 25%. Currency and copper also contributed with 5 million or 1%, whereas currency was slightly negative and copper was the positive impact in this bottom. On the net sales, we see that we have almost grown by 50 million. Also here the organic growth is by far the majority with 11.4% or 43 million. There we see a slightly different picture, double-digit organic growth in industry and com, and let's say only 3% growth in transportation when it comes to organic growth. They mainly benefited also from the copper, but overall currency on copper here is on the same level as on the order intake level. I think we really benefited from a record high gross margin this half year with almost 40%. And there are several reasons for it. First of all, we could benefit from a very favorable mix. Mix in the sense that the high margin businesses, in particular in the industry, but also in the communication segment, grew over proportionally. Compare also to the transportation segments, but also the mix when it comes to geography, you have seen before that America grew extremely and also Europe and normally we have higher gross margins in the applications in the US application and also in the European application compared to what we sell in Asia. Secondly, we could benefit also from better fixed corpse absorption compared to last year due to the higher volumes. So we have, let's say, also less inventory cost due to that fact. And certainly, we could actually also benefit from the measures we have initiated last year in optimizing our production network. As you probably remember, we have closed down our production site in Brazil. However, I have to say there is also some headwind already started in the half year, but probably more to come with regards to the sourcing, which will have also an impact on the gross margins going forward. And I think this is not a Huber Sooner specific. I'm sure you have heard it from a lot of other companies before. However, it's also relevant for us. And I have summarized it in three major topics. First of all, we have also let's say be influenced by much higher prices in certain relevant material categories obviously industrial metals copper and all the others have increased sharply over the last few months but also in particular chemicals and polymer or compounds we have been confronted with a high increase on the other side I have to say, in a certain part, we can pass on to the customer, in particular when it comes to copper. But in other areas, we are not in a position to fully pass on all price increases to our customers. Secondly, we have been confronted with longer lead times, in particular in some of our critical materials, and we had to do, let's say, a more forward-looking, more longer-term planning in order to secure the availability of all materials. So far, we managed it very well, so we had never had any production stop due to missing materials. Sometimes it was quite close and it's a challenge to make sure that everything is available, that we can continue to produce on full speed. And it often has also an impact slightly on the inventory because we had to, let's say, to increase our inventory with some reserves in order to really be flexible. And the third point is also higher transportation costs. So this is also valid for sea rail and freight. And the most affected routes are those from China to US or China to Europe. And also there we are not able to pass on all costs. But hopefully it will also normalize after a certain while. When it comes to the operating expenses, we have increased them by 10 million compared to last year period to from 107 to 117 million. However, you can see it's still below the pre-COVID level where we had 121. When it comes to percentage-wise in relation to the turnover, it was a decrease by 1.1 percentage points to 27.4%. You can also see that all three categories, so sales, marketing, R&D, and administration costs have been increased. We still invest 6% plus into the R&D in order to be innovative also going forward. I think most of the cost has been normalized. I think the only exception is probably traveling cost because there was still quite some restriction for our sales guys to visit the customers. So on the sales and marketing side, as soon as traveling is getting easier, obviously our sales crew will be closed, go directly to the customers physically, and there might be then some increase on the sales and marketing side. On the other side, you also know that traditionally that the administration costs are slightly higher in the first half than in the second half of the year. We have heard before the first time we showed the EBIT according to our new market segment structure. We've also heard that we have doubled our EBIT in absolute terms and and ended up with a 12.2% EBIT margin as already pre-announced in our June reporting. Yeah, industry with a very high margin, with 21%, very nice, but the biggest jump in communication to a double-digit EBIT margin, 12%, and transportation, we have heard before, there have been some pre-investment, and that's why they stayed more or less on the same level, but which is also for us at the lower end of the expectation. One comment with regards to the corporate costs. So they are also normalized in our new structure. Let's say we have added the corporate communication cost also to this segment. And that's why going forward, a normalized run rate for the full year is in the magnitude of 9 million. Before we had corporate costs in the magnitude of 7 million. So for those in particular, for the analysts, it's important to understand that there's a slightly higher level of corporate cost going forward. And on the currency situation, I think there was a mixed picture. Normally, there was a weakening of the Swiss francs in the first six months of the year with a big exception. I would say that the U.S. dollar was the average rate because 12 months ago, the U.S. dollar was much stronger. So, and that, let's say, was balancing out most of the other increases in the other currencies. But overall, it can be said that currency was not a dominating factor in the first half year result. Going forward, we have seen that there have been some appreciation of the Swiss francs again in the last few weeks, and I hope this will not continue this way. On the net financial result, I think we were short 1 million compared to last year. However, it doesn't come from currency, as you can see. It's mainly the other financial results. So we had higher costs due to more repatriation costs from China. We also had higher negative interest costs and also lower interest income. But overall, still, let's say, on a very controlled way. On the group tax rate, we... could improve quite significantly to a very low number. So first I comment on the 19.4, so the expected tax rate. There we could benefit from a very attractive mix where we actually cure our profits. So we had a high share of low-tax countries where we could actually make our profits. And I mentioned it in March that we have now – achieved the high tax status in China and we could apply this also now for the first time in the half year result and this is part of the 19.4 percent and on top of it actually the effective tax rate went down to 17 and a half percent there we benefited from the R&D tax benefits here in Switzerland and also from some losses carry forward we could use On the other side, I have to say this tax rate is probably not a sustainable midterm because already some countries have announced that they will increase the tax rates in order to fund the COVID expenses, namely UK or the US. And I'm sure you have also heard that there is this OECD initiative to have a minimum taxation of 15%, most likely to come in 2023. And we as Hubert Sooner will most likely also be impacted by that. I mean, we don't know the technicalities, how it will really work. However, it's a high likelihood that midterm the tax rate will go up again. On the investment side, I announced in March that we will have significantly higher investments to come. However, you can't see it here yet in the first half year. We are still, let's say, on an average level compared to the last few years. But I can guarantee you that they will come because... We're currently constructing the new building in Treffikon for the Wittsburg to have to consolidate to one side and be investing also in a lot of production equipment for the automotive industry. So starting in probably second half of the year, but also then in the next year, we have to see a higher capex level to come. On the balance sheet overall, I think it's The same good structure. I think there was an increase in the networking capital position due to the increased business activity. On the other side, we have the same high amount of cash as compared to the end of last year and actually an increase of 60 million compared to 12 months ago. How this actually happened, you can see on this slide, we actually normalized our cash flow from operating activities to 43 million because last year this was very low. And just mentioned before, the cash flow from investing activities might be still low, but they will increase going forward. deducting then the dividend payments and the purchase of our own shares for compensation purposes, we ended up with a free cash flow of minus 3.3 million. With that, I'm already at the conclusion of the half-year result. Yeah, I think we can really say we had a strong development top and bottom line. We could double the EBIT and thanks to an attractive tax rate, also the net income. And we also had a good cash flow. So all in all, we can say that it is the best half-year result we could actually present in the last few years. By that, I give it back to Urs for the outlook.

Yeah, and I will share with you our outlook and share with you how we judge the environment and the markets. And we can already say that the basic trends and prospects in most markets They are currently very favorable and we believe that they will continue this way for some time. However, and we have heard it already from Ivo Wechsler to a certain extent, despite the currently very positive market environment, there are risks in the market which cannot be neglected. For instance, COVID-19 is not overcome yet fully. And it's just June that we had to close one of our factories for some days due to COVID measures in Malaysia. And we still see some restrictions in some countries. And I think it's not over. I think we have all learned to deal with it. And I don't expect that there will be broad lockdowns in a large number of countries. But there are still individual spots where we are confronted with COVID restrictions. On the other side, we see a world economy which is close to overheating, which will fuel the inflation, and also the already mentioned raw material price rally is difficult to predict when it comes to a peak. The availability of certain materials is scarce, and in particular also electronic components and chips remain very tight when it comes to supply. Now you may ask yourself why do we care about chip because a few of our products include chips but on the other side if there are line downs in some key market verticals for us for instance in the automotive industry it will also impact hoover sooner as a supplier in these markets. And last but not least, geopolitical tensions, they create a permanent uncertainty and we don't know what's going to be next. So we have to be flexible and agile when it comes to adjusting our global business footprint and also our global supply chains. when we look a bit closer at the different markets industry in general we are not the only one that benefit from a very favorable and broad based upswing but industrial applications as you can say from the results they offer particular for our business scope connectivity very attractive opportunities Driven by the need for communication solutions, also in industrial applications, we still see potential to grow our business in a wide range of market verticals. In particular, we see strong dynamics prevailing for high power charging. And also on the test and measurement applications, we still believe that the cycle will last for some time, fueled by the higher investments in 5G rollouts. Last but not least, the desire to feel safe fuels the demand further for aerospace and defense solutions. And one of the reasons for the new organization and in particular important for industrial market verticals is that we have opportunities in bundling our technologies, RFFO and LF, which under the new umbrella of the industry segment and the new umbrella of our market segment organization, we have identified significant opportunities and we are trying to leverage that in these applications. In the communication market, we believe that we have a strong period ahead of us. We think that this positive market environment will continue for some time. We have all experienced that the functioning of communication infrastructure is detrimental for the functioning of the economy and the whole society. in COVID and pandemic times and we believe that this situation will trigger and release further investments in communication networks. I mentioned several times 5G picks up momentum. The evolution of 5G infrastructure will not be over once the equipment is rolled out. We will see that 5G technology will also evolve and even if it is already installed and rolled out, we will see upgrades and we will in particular see investments towards higher density networks and also higher data rates. And last but not least, Every data traffic generated by mobile network needs to be handled by a communication backbone, which again releases investments in the fixed net application. The expertise. In the optical technology, which is coming from the acquisitions in particular in filters, but also in optical switches and also with BKTel in active equipment. makes us one of the few companies that can master basically complete solutions on the physical layer and we see quite significant potential in cross and upselling single products and combining it with complete solutions for connectivity on the physical layer in communication network. In the transportation area, we see a railway, as mentioned, still facing headwind, but we believe it's a temporary headwind. The outlook still remains quite positive for rail, mid to long term. We also still have a lot of projects in the pipeline. Visibility in this market is traditionally quite good. And there are a lot of significant beats out, and we are confident that the railway market will return at some point. On the other side, already now we see a boom for onboard communication and we believe that this application, a specialty where we are extremely well positioned to serve complete solutions for communication on trains, will become more than just a niche but really quite a significant trend. The automotive market is in a good state. It's back to growth. But the focus lies on electrification, on EVs for commercial vehicles as well as passenger cars. And that will not change over the next year. And I think we are well positioned here to benefit from this trend. There is a particular trend for short haul commercial vehicles, so small trucks which have EVs. very predictable routes to serve are actually perfectly suited to be electrified and for longer range trucks we believe that hydrogen-fueled vehicles may become the technology of the future but also hydrogen-fueled vehicles are driven by electric motors and need high voltage circuits. So for us that doesn't change the picture completely. And last but not least in this market, the trend towards autonomous driving despite the setbacks and all the hurdles to overcome from a regulatory point of view continues. And with these high number of sensors and high resolution gears in the car, we also see the data rates sharply picking up in automotive markets. and in vehicles, which opens up opportunities for HuberZoomer and for our technologies. This is a short overview into the markets and how we see them. We can say as a business outlook, basically, we have in the first six months of 2021 seen a broad economic recovery. We have certainly benefited above average. We've also been hit a bit above average in the COVID peak. But now we have been able to recover from that and we are back to pre-COVID levels. We have a strategy which focuses on growth applications and market verticals. which are driven by major social trends, and that starts to pay off now. For instance, we see greater demand for security and also rapidly growing data volumes in all parts of the network, and these trends will certainly persist. Agility and flexibility was a key in our organization to benefit from the upswing because it came first. without long pre-notice and quite suddenly and we were not able to prepare very well for this upswing. As I mentioned a year ago we have been at a different state. We were in a restructuring and saving mode. And since beginning of this year, we needed all hands on deck and the organization has really done an excellent job in capitalizing on these opportunities offered by the more favorable market environment. The increase in demand in many industries, as mentioned, is reflected in supply chains which are under pressure, transportation capacities, but also availability. And last but not least, it's shown and reflected in higher prices. From today's perspective and to wrap up, Ubersuno expects the positive momentum in important and in most of our market verticals to continue for the next few months. This leads us to the outlook on net sales and EBIT, which is that provided the procurement and currency situation remains as is, The company confirms the outlook already issued to the market end of June for the year as a whole, which means that we will achieve double-digit growth for the full year and we expect an operating margin to be above the mid-term guidance of 8% to 10% for the full year. With that, we have come to the end of the financial reporting. And as already mentioned in my introduction, we plan to have a first Q&A session and I would like to start really in thanking you for following Huber sooner closely and in such a dedicated way and it's always a pleasure to be in contact with you. We appreciate your questions now and I suggest that we start in the room and we will then in a second phase of the Q&A section also give our participants in the video transmission the opportunity to ask questions to us. So, are there questions from the audience in the room? I will repeat the questions afterwards so that the participants in the video call can also follow the Q&A session here from the room. Please. It's a question about how well we are in a position to pass on the price increases in the sourcing market and how timely we can pass it on to our customers and what will be the impact on the margins. We don't have that impact. We expect, as mentioned, that the margin will be under pressure. But we have some contracts with customers that allow us to pass on the price increase immediately. Others have clauses which allow us to share. And then we have some contracts where we are bound to our pricing. So there will be a mix. We expect an impact, but it's difficult to quantify. Herr Mayer. So the question is if we can benefit in a similar way from the 5G lifecycle as we were able to benefit from the 4G, because in the 4G peak we were able to generate business in excess of 100 million in this market vertical. And I can tell you that we expect similar development for us. The market has now started on a broader base. We have 5G rollouts ongoing since three years. Now we see really volumes starting in the North American market and in the Nordics and also some other rest European countries and we expect that this wave will continue for some time. We have in the result already presented a significant upswing in the market vertical which addresses the mobile communication market. So that is already reflected and built into a certain degree. Maybe I have mentioned it in one of the last presentations, but for you to remember the two largest single market verticals for us is the mobile communication market on one side and the railway market on the other side. And the market vertical for mobile communication has had a sharp increase in the first six months. Maybe

If you may ask.

Okay, so the question number one was why is Asia business shrinking with 8%? The third question was whether there are learnings from the cyber attack. And the second question was? restructuring how the headcount is developing and how we deal with this different situation so the first question about Asia we have to say that a large part of our Asia business is rail and the rail business in China has not picked up yet And in particular, the high speed program of the Chinese government has been reduced in several steps to a fraction of what was planned. And that is the major result. We also had another impact and that is related to India that's been hit heavily by a second COVID wave. Basically, India was flat for two, three months. Business was really at the bottom and was crashed. And we only see that business now gradually picking up again. And all the other countries, they play a lesser role on our business. But those are the two main impacts, China Railway and COVID in India. The restructuring obviously was initiated, announced, has been executed to a large extent. Still some things to come in the second or in the first half of 2021 when we have realized that business pattern changes completely, we have obviously stopped these programs. We have not fully executed the reduction of 100 people in Switzerland. We have been more than halfway and basically the program was ready to execute completely now in the first six months of 2021. As we have planned to do that in a social way, we have not just terminated contracts, there were discussions going on which have now stopped and it was announced to the organization that for the time being that program has been stopped. We have closed the shop in Brazil that we have fully executed, so Brazil is just a sales office for us. reflecting also our business performance in Latin America and in the other countries we can say that we have reached a low at the end of 2020 and early 21 and since then we are building up capacity again.

How many people in Brazil?

In Brazil it's about 150 people. Yeah, a bit more than 50 in Switzerland headcount. But since a few months we are re-employing in Switzerland. And then cyber, I mean for us cyber is closed. We've been hit by a cyber attack 13th of December. I'm getting a bit tired to report about that because for us it's already really passed. But I don't regret that we have openly communicated at the time. I can tell you there are a lot of companies which don't do that and you'd be surprised. by the number of companies affected by cyber attacks. And what you can see and read in the news is basically just the tip of the iceberg. It's a major threat. We have been hit and it was a bad coincidence and there were several things which came together which made this attack successful. We've been able to fight this attack on our own. We have not paid. any ransom and we've been able to reassume work or resume work after basically two to three days in our plans. There were some systems which took longer to get back but we had fresh backups that we could use and we could basically clean all our system landscape by ourselves and restore everything by our own. I don't want to be proud of that. I just hope it's never again going to happen. We have drawn conclusions. There is a very long punch list. And we are, I would say, about 80% through with the execution of all these measures. And you should never say never again. But I'm pretty confident that if we have this punch list 100%, worked down, we will be one of the most protected companies in the industrial environment. But you can be hit once and you shouldn't be hit twice.

I have a question concerning transportation. We had almost 10%... You mentioned that you need a lot of pre-investments. On the other hand, the question comes up, are there no scale effects in this field, and or has automotive lowered the margin of entry?

Yeah, I mean, it's neither of these points. The cycle in automotive is that there are very long designing cycles where you have to prove your product in very tough tests. And based on that and based on attractive pricing and based on the product performance, a company gets nominated. And then from nomination you basically go through an installation of the serial production processes, which then again have to be approved by your customer. And typically you start a program or a project, particularly when it's a new technology. Let's take our example of the high resolution radar. there you have between three and four years before you start to generate sales. And it can be that with a more mature technology, it's going down to 18 months or two years. But the cash out is in the middle of this pre-investment phase because you have to prove the performance and the quality of your products based on serial processes. And then you have this typical ramp up life cycle curve, which means that the peak for your sales is only near three, four or five. And that makes the automotive business quite pre-investment heavy. So it has to do with the timing in this business. And the margins are comparable to railway. For instance, we have programs for new high-resolution distance radars. We have started to work on that three, four years ago. We've been nominated in the last six to 12 months, and we will start to see first small sales volumes end of this year.

One additional comment to the growth in transportation. If you look at organic growth, it's only 3%. So my major contributor is the increase in copper prices. And that's why the fixed cost absorption was not so high. On the other side, we have seen that we have the best book-to-bill ratio in this segment. So there will be some more to come soon. And then hopefully we have a better fixed cost absorption because, I mean, it's not the dominant, the dominating technology is LF. And I think they have been, let's say, always a single digit and they have the highest, let's say, from a capital point of view, the highest capacity needs. but also on the one we work with to consolidate the site in Pfefferkonti should also help then once this is done that we can also have some efficiency in the production of this segment. That will be the full effect of this is not next year from the consolidation side, that's in 2023 the full year effect.

Thank you.

No, we cannot give you the figure on the cost.

We are still in discussion with the insurance. I don't want to report any figures in this case. Am I on? Yeah, there are several effects. Many of these communication equipment customers sit in China, at least some key customers, and they suffer. In the Western world, we see that particularly in North America, the large 5G rollouts. They include obviously communication equipment, but all the sales side material, which is a large portion for our sales into this market. And we channel that sales through two different routes. One through the communication equipment manufacturers. For those operators that buy a turnkey from the equipment vendors, and then there are large operators like, for instance, Swisscom and also the US operators which buy that directly from the source and not through a Huawei or through an Ericsson or through a Nokia. And we see a bit the shift of business from the communication equipment market into the operator market. Then there is a second reason, and that has to do with cube optics. Cube optics sells filters, and they are in a transition phase with clearly lower volumes. They have some end-of-life products, mainly on the 100 gigabit transceivers. and they are in designing processes for 200, 400 gigabit transceivers, which have not really reached the stage where they are sold in volume. And in this transition, we see cube optics on a clearly lower level currently. We are confident that they will come back with 200 and 400 gigabit transceiver market. and they report all their business into this communication equipment, vertical, because the customers there are Cisco, are HiSilicon, are Finisar, Sumitomo and the like. We hope so. Yes, Mr. Felkes?

Mm-hmm.

So the question is if the Western or the European dominated railway market, how this market develops and whether this market will be able to compensate for the lower Chinese market. We can say that the business in railway in Europe is quite stable. We believe there is more potential, but I don't think that it will really jump. In order to get rail back to where it was two years ago, we clearly need the Asian railway market to come back. And when I say Asia, I particularly mean China, but also to a certain extent India, which is also an important rail market for us in Asia. Thank you very much. Yeah, it's a bit difficult to say. Seasonality is a pattern. You may remember the past five, six years where we always had a stronger first than a second half. It also was driven by strong Indian business in the past where we had monsoon season starting in September, October, and typically rollouts are slowed down. We have a much smaller share of our business in India, so that effect will fall away. I don't expect a very high seasonality this year. I expect more or less equal half years this year. And the main driver behind that is that we have the seasonality, yes, but we also have a relatively good backlog at hand, which is unusual. Usually high for Huber sooner and it has to do with the high book to bill or the very strong order intake in the first six months. So I would expect that we can compensate a bit the seasonality this year. We expect the mix to stay as is, but we expect the margin to be a bit under pressure from the effects which we have elaborated on in details, price pressure and the like. The mix? No, I don't expect the mix to further improve. I would expect the mix to be as is, and then on top we have a bit of pressure from the markets. I think at this point I would like to hand over to the moderator in the video call who is coordinating and moderating the questions from the audience that participates in our video conference. Please.

There are no questions from the phone.

That doesn't seem to be the case. Then maybe back to the people here in the room. One last chance. All questions answered. Okay, then thank you for the lively discussion and interesting questions. And with that, we would close the first section of our presentation. And I will share with you some insights in the focus topics. Here on this slide, you see an overview of our financial calendar. You have that also in the handout. So next touch point with public is end of October on the 21st, where we report three quarter figures. And then, as usual, late January on the 21st. of January 2022 we state the pre-final date sales and order intake figures and then again the full year report will be published on 8th of March. All right, so the focus topic, the market segment organization, I don't make it very long, but I think for those of you that follow Huber Sooner, I think it is important that they can relate to the past and see which way we go now and why we have done it. In very simple terms we have shifted our reporting focus by 90 degrees in the cube. Instead of technologies we consolidate along the market segments and why we do that I will share now in a short video that explains how and why we have changed that.

Momentum 2021 makes us ready for tomorrow. Even in tested processes there is potential for improvement. If we work with this customer today, we offer exactly the technologies he needs. The knowledge of low frequency technology is located here. The customer is in lively exchange with the colleagues in this division. However, the customer would benefit from our radio frequency technology as well, but the knowledge of this need must first arrive here. With Momentum 2021, we are organising ourselves based on the way the market is structured. Everything is divided into three market segments, industry, communication and transportation. After all, it is the need for a solution that is most important to the customer, not the technology we use to achieve it. His contact partner works in the transportation segment, in sales for the automotive market. This way she can cover all the needs of the automotive customer directly, regardless of which technologies we use to realize the solution. Each of the three market segments has the same clear structure. The areas are sales, strategy and business development, and technology and operations. These teams work around the world. In our example, this means that no matter whether the new need from our existing customer arises here, here or here, our sales colleague or another sales colleague for automotive elsewhere can react quickly. To do so, she is connected to her colleagues in the other segment areas. The area of strategy and business development combines our offerings for the market and bridges the gap between sales and technology and operations. In doing so, it considers all of its own technologies and the technologies of third-party providers for the best solution. We are setting aside the existing sales regions and organizing ourselves in global teams with local presence within the three market segments. Our three technologies are split across the three market segments so that each segment contains the dominant technology. Within the three market segments, the paths are shorter and the coordination is simpler. We gain agility. Thus, we are focusing even more strongly on the market, simplifying our structures and processes, and playing our technological advantage where it is needed, with the customer. Momentum 2021 is a big step for Huber and Sooner and for each and every one of us. Let's take it together and lay the foundations for a successful future.

Two main objectives are related to this reorganization. It's an increased market focus and simplified structure. So for instance, we have got rid of our matrix structure. We have formed global teams and we have with the segment orientation, I think we are easier to be understood also for outside people, but also for our customers. and why internally we want to achieve more market focus. We can say that speed is a secondary objective. We are quite often very fast. We are early adopters. We are detecting trends, but then we are quite often not very fast when it comes to really implementation and we want to change that simplicity. As I mentioned, for our size, probably quite complicated, organized in the past with a matrix. And we want, with this simple organization, to free up energy that will benefit our customers. And agility, experience. is one of our core strengths, technology, and we want to use that expertise more in a way that the customers benefit from it and combine it with entrepreneurial spirit. And last but not least, the market proximity. In a nutshell, we want more market pull and less technology push. That I mentioned, instead of regions which are all or in the past all needed a lot of alignment between the technology divisions and the sales regions, we have now truly global teams and one of the basic elements And probably the preconditions why we have been brave enough to do that was the experience during lockdown and COVID times. And we have all of a sudden realized that we don't need to take a plane and fly everywhere just to have an alignment discussion. We can do that through video conferencing and other digital means. And that has encouraged us to shift to truly global organizations. A word about customers. I think quite often we talk about figures and numbers and not so much about customers. We have an excellent customer base. We have had about 4,500 buying customers in 2020. If you take a longer period, you may find about 8,000 customers on the list here. And we have about 30 customers that represent customers 50% of our business we have with less than 100 customers, which represent 80% of our business. And then we have a huge pool of customers which represent quite a significant opportunity for us because they're buying just fiber optic or RF and there is a potential to sell more than one technology to them. Three examples why we do it and how we do it. So across technology market solutions in the example of wind power, it's a market vertical, which is not a core market. It's a bit more than a niche, but here typically we can sell all three technologies. We've entered this market with fiber optic. It's mainly the cabling within the tower from the bottom to the nasal. And there are more opportunities. There is, for instance, the energy cabling in the medium voltage drives, or I should say converters. And there is also the wireless connectivity within a wind farm from a wind tower to wind tower and back to the wind farm. control room obviously a market which cabling for us is significant for a complete investment in a wind farm it's a small part but if you don't have to the right cabling your investment as an operator is idle and cannot be used but also the harsh environment in wind farms, think about an offshore farm, is one of the challenges which requires higher quality products, so this is a perfectly suited application for HuberSUNA. The second example, is coming from the communication market, so large data traffic requires mobile network densification. Take a stadium, the last two years that wasn't a very dense area, but it will become again, or take a train station or an airport There we have to make sure that the increasing data traffic is coming to the spot and going away, but also the coverage within this high density spot is key. So here we can offer products which provide the timestamps or a GPS signal is key to synchronize the different elements in a mobile network. We do that and we do it even a bit better than others with a direct EPS over fiber connection. So no voltage connection, no power connection, but the energy is transmitted with the laser through the fiber. Then there are also cube optic systems which provide more capacity on a given connection on an individual fiber. So there we combine their filter technology, their WDM technology with an active part and we can sell complete systems which boost the capacity on a single fiber and then there is the connections within the stadium or the airport. The last example comes from railway. I talked several times about onboard communication. We believe it's becoming more than a niche. We have typically a market leadership for the whole LF cabling on trains and then there is the whole communication part which consists of intervehicle jumpers which form a backbone through the whole train and with the train to ground communication and the onboard communication which requires antennas. I don't go into the details, these are just a few examples which highlight the opportunities in cross-selling and leveraging our three technologies and we plan to intensify that in the new organization and with the new organization. That's one focus topic. I suggest that we have a Q&A session at the end of both topics quickly about sustainability. I mentioned that we have now a full sustainability report available which covers 2020. We plan to synchronize the reporting with the full year figures for 2021 and then beyond 2021 have a fully integrated reporting at some point. So sustainability is obviously one of the key topics of today at the heart of our business lies the ambition, the aspiration to satisfy the basic human need to be connected and with our connectivity solutions. we can contribute to these needs and these strengths. And we are contributing, first of all, to people being connected through means of communication, but also through sustainable mobility, be it on the tracks or through electromobility on the road. And also responsible security while acting overall in a responsible way, which is our aspiration, as I mentioned. Why do we do it? Obviously, we have to, but then it's more than that. We want to go beyond. It's also differentiator security. versus our competition. It's also a driver for ideas because the forward-looking mindset which sustainability always includes also helps us to navigate in the different opportunities and trends in the market and the lines also helps to align also our business strategy in a way. that we have a long-term perspective in the targeted market verticals. It's a driver for innovation. It helps us to anticipate risks and opportunities. And we have a proactive approach and the aspiration to exceed minimum standards in the field of sustainability. We have a business model. I don't go into the details, maybe just in a nutshell. There is an input section and an output. The KPIs cover basically the span between input and output. We have in the middle of our business model our fundamentals with the vision, which consists of our claim, our mission, our values, our purpose. We have then the strategic focus, the ambition, and the responsibility part, which includes the different aspects of responsibility management. for Huber sooner. And last but not least, that is all looked at in the context of the different dimensions of stakeholders such as customers, employees, the communities, the suppliers and the shareholders. That's our business model. A few highlights related to the business. So there were no cases of corruption, bribery and conflict of interest reported. And we have achieved 20% of our sales from growth initiatives, which per se are selected also always based on the fact whether they are sustainable or not. On the relationship part, there are also several highlights. I would just like to highlight maybe the... The figure here, which states that we have invested and spent $333,000 on 118 community involvement development projects in 2020. On the environment, the key figure probably here we've been able to reduce CO2 emission versus previous year by minus 21 percent and all the others I leave for your reference when you go through the handouts. A few examples and when we do business we also try to address the topic of sustainability. Here an example from the mobile communication market where 5G equipment is energy consuming. and the answer to that are cabling from Huber Sooner and the cabling which is able to support different voltage levels, so going towards higher voltage and in particular going from AC power to DC power, which requires quite significant changes to the product, but which also helps to save energy on these mobile network sites. Another example is our engagement in the electromobility with products going into the high voltage circuit in the cars and in the trucks, but also our solutions for the high power charging, which is an enabler for electromobility on roads, as you know. And last but not least, data center. Data center is a critical infrastructure, follows basically the data traffic. As we all know, data traffic is ever increasing and data center are a key energy consumer of today's world. And hence it is extremely important that They are eco-friendly and energy-friendly data centers, and with our products going into data center, we enable that. We do that by better organization, better arrangement of the cabling, which permits and allows the airstream to have a more efficient cooling in the data center. And there are several other things that benefit the energy consumption of a data center that we can provide to this market and to our customers here. Yeah, we have selected 13 topics out of business relationship and environment. There are three focal topics because we don't want to do everything just a little bit. Sustainable growth is one of those topics, the community involvement and development and the greenhouse gas emission. And our targets in those three focus topics are that we want to grow the share of business generated with the growth initiatives from today 20% to share higher than 33% by 2023. The greenhouse gas emission we want to halve by 2025 and cut to zero by 2030. And the community involvement in development shall see spendings of half EBIT percent or at least 500,000 per year starting already next year. Those are our targets for sustainability. We report based on science-based targets. We have rating of CDP and ECOVADIS and we have signed the UN Global Compact is just to close and wrap up this last focus topic and with that I'm now definitely at the end of our presentation but not without not giving you the opportunity to ask your final questions as before to the people in the room first. No. Yeah. Yeah, you take last year's sales, it's about $150 million, huh? And then if you take an average growth, take, let's say, take 3, 4, 5% growth and apply that to the next two years and then multiply with 33%, you get plus minus there. Yeah, absolutely, that's... It is a starting point. We cannot exclude it and we cannot take it out, but it hasn't been more than 20% before. Actually, the growth initiatives have hold up best from all our market verticals in the COVID crisis. That's why they are called growth markets. Thank you. Yeah, it's obviously not a decision which you take from one day to the next. And it was something that I carried around with me, but I don't believe in revolutions unless it's really needed and you are with the back to the wall. I never felt that Hoover Sooner is with the back to the wall. So I took the organization as is and we started to evolve and develop. And I carried that idea around and I found the time right, middle of last year where the decision matured and I approached the board of directors and they supported that. And as I said, I mean, there are several aspects. I could give you a whole list, but really the most important targets, and I want to keep it simple, is that we want more market pull and less technology push. So we want to be closer, even closer to our customers. And I want for the size of our company, I want to spend less energy in aligning our strategies. And for that, one of the key measures was to eliminate the matrix structure. The journey is ongoing. An organization is never 100% stable. I don't want to have such huge changes every half a year. We don't have that culture and I don't believe in the benefit of doing this unless you really have to rock the boat. But I think we have, despite the huge workload which fell from sky all of a sudden beginning of this year, I have to say that the organization has adapted already, I would say, 85 to 90 percent and things. are working perfectly well. I don't feel any efficiency deficits in the organization and I have never ever at any point felt any lack of customer focus, which is One of the key risks when changing an organization so fundamentally that you focus internally and you forget your customers. And that has never been, not even for a very short period, been the case. Key account management hasn't changed much. We still have some accounts which are called key accounts. The point is that they have a global need to be served and we have global teams that serve those customers. But we have, of course, a lot of customers below the global key accounts, which also have multi-regional footprints and multi-technology needs. And they can be addressed now in these market segment teams in a much more effective way. Yeah, I mean, it is an interesting exercise we are going through. If you change the view on a company by 90 degrees, as it can be seen from the cube, obviously it gives you different insights. And of course, we are always measuring and monitoring the company in all different dimensions. But with the consolidation along a particular line, you have always a special emphasis on this view. And of course, by changing the view from technology now to market segments, that gives us indeed different insights and probably also triggers different decisions. I don't want to go into details, but capital allocation is just one of the topics which will be reviewed also now under the new structure. I don't expect any changes, but I don't want to exclude that there are still no questions from the phone. Thank you. Then for me to say thank you for your interest in Huber Sooner and goodbye and hope to see you in person or in the video call next 8th of March 2022. Thank you very much and goodbye.