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