Huber+Suhner AG

Good morning and welcome to the presentation of Hubert Zuner's full year result for 2021. It's a great pleasure to welcome also some people physically in the room. It's always nice to see some faces in front of one and not just speak with the camera. I am going to give you a very brief overview of the business year 2021 before Ivo Wechsler will deep dive into the financial results and its details and I will follow up and wrap up with an overview of what we do with regard to sustainability, re-explain a bit our strategic focus, how we see the market trends and also give you an outlook for the year 2022. We will then have a chance to close our presentations with a Q&A session. Let me give you the big picture and put 2021 into perspective to start our presentation. While we have also suffered in the first COVID year from a decline in sales and EBIT, 2021 has started completely differently. We have seen completely different levels of business volumes coming in as of January 2021, and these levels of business continued for the full year until its end. As a result of that, we could significantly increase our order intake by a growth rate above 30% and also grow our top line sales by a double-digit percentage. All three market segments have contributed. Important for us, and we will come to that when we look into the markets, is that also our dedicated growth initiatives or the markets for the future, they have contributed very well and above average to the growth. There were significantly higher activities in all market segments and across all market verticals with very few exceptions. And as I already outlined, the very special circumstances concern the fact that we have seen consistently high business volume throughout the year, including the summer period as well as the normally weaker second half. As a result of our top-line growth, also on the bottom line, we delivered absolute operating profit and net income on record levels in the company's history. Our EBIT margin reached a level of 12.1% and increased by... almost four percentage points. Our net income rose by two thirds year on year. I would like to remind you that for the first time this time we report the full year figures based on our new market segment structure and our three market segments. We have already reported our half-year figures in those three segments and for the full year it's the first time. This new market segment organization has been introduced with the start of the year 2021 and is considered to be now fully implemented. We have basically turned our cube by 90 degrees, shifting from a technology organization to a market segment organization. And our objective with that new organization is to address the markets with more focus and also leverage on our wide range of technologies. The figures at the glance show the absolute values. And you can see on the order intake level, we have almost achieved the 1 billion. This represents the second highest ordering take in HuberZuno's history. While net sales rose to 863 million, the third best sales in HuberZuno's history. And on the bottom line, record levels in absolute terms with 105 million EBIT. and $87 million of net income. Here you can see our EBIT development over the last five years. You can see that with 2021, we have clearly now left our midterm guidance, which so far stood at 8% to 10%. You can see that with the exception of 2017, the last three years have been clearly within the guidance, including the difficult COVID year 2020. And with this, with the last year, 2021, we have now left the guidance clearly. on the upper end and I will come to that at the end when we present our outlook and our guidance going forward. The industry, all three segments have contributed as I mentioned, but the industry segment contributed most with impressive growth coupled with a very high level of profitability. I cannot point out just one market vertical that was at the basis of this good development. All industrial markets across all our applications developed really very well in 2021. including our core market test and measurement and our growth initiative aerospace and defense. But also the niches here contributed with very good growth. And hence, we achieved on order level as well as on sales level growth in excess of 20%. and the profitability, which rose compared to the adjusted 2020 figures by a bit more than 5% on a new level of 21.2%. For you to remember, the technologies sold to industrial customers include basically products of all three technologies, RFF and LF, But the dominant technology in the industrial applications is the former RF with 62%. The communication segment has leaped in orders with close to 50% growth, while the EBIT margin improved into the double digits, very well into the double digits, and orders reached a new record level here of 420%. while sales jumped by 18% to 341%. The driver behind, we will see that when I show you the development by region, was the expansion of 5G mobile networks, particularly in the Americas region, and also the fixed net infrastructure growth. The growth initiative in communication is data center, which also contributed to the increase in sales. The sharp rise of devices in networks boosts still data traffic and driving the infrastructure investments forward. In the communication segment, it's 85% of sales related to fiber optic products. The transportation segment also contributed to the growth with double-digit sales growth. Orders rose even by 26%, but the bottom line here was behind our expectations and reached just a level of 5%. The business in transportation is divided in road transportation and rail transportation, and those two businesses developed quite differently during 2021. We have seen significantly lower volumes in railway, particularly in China, and here also predominantly related to the high-speed programs. Public transportation has not suffered probably among the markets with the most decline. as people were hesitant to use public transportation excessively during COVID times. And particularly in China, where mobility was hindered by the government, it has had an impact in the investments in rail infrastructure and trains. On the other side, we have seen the automotive subsegment developing favorably. And particularly there, our positive development was driven by our new initiative or our growth initiatives related to the electrification of the powertrain in electric vehicles. There were substantial upfront investments done for electric vehicles. Products that go into autonomous driving applications, which have burdened the result of this segment. Here we talk about these high resolutions radar antennas that go into the next generation for distance radars, which have not contributed substantially to the top line while they have consumed significant upfront investments. Also a burden on the bottom line for the transportation segment above average were the rising raw material prices, especially copper, and also the price increases for insulation compounds. For you to remember, in the transportation segment, 86% of our sales is attributable to low frequency products. This shows the three segments in an overview, but what I would like to highlight here is that despite the fact that our smallest segment has grown the least, it's still a very well-balanced diversification with transportation segment accounting for 29% of our turnover, while the largest segment communication accounts for 39%. A bit more to say we can do here on the net sales by region because here what sticks out is the very dynamic development of the business in the Americas with 61.5% growth. I mentioned that at the origin of the Very positive development in the communication segment were 5G rollouts in the Americas, USA and Canada. And that is at the origin of this very dynamic development that is shown here for the Americas region. EMEA developed also quite well, but I would say in average with the group and grew by 15%. Expanding the lead over the other two regions, while in Asia-Pacific, we see the impact of the decline of our railway business in China, with the fact that the Asia-Pacific region declined in sales by 9%. With that, I'm already at the end of our first section, the overview, and I would like to hand over to our CFO, Ivo Wechsler, who is going to give you the details of our last year's financial result.

Thank you, Urs. Ladies and gentlemen, also a warm welcome from my side to all people in this room, but also to all participants at the webcast. We have heard 2021 was a record year in different aspects, and I think the most important factor was that we actually had two excellent semesters, as you can see here on this page. And it comes to top line, but also bottom line, quite a similar picture. The other message to this slide is that we not only improved significantly compared to the 2020 year, but also to the pre-COVID year, 2029. So let's go a little bit into more details, and I'll start with the order intake. As you can see here, we grew by 33%, or almost a quarter of a billion. Out of the 33%, 30% is organic growth, with the highest contribution from the communication segment with 47%, followed by industry with 24%, and also transportation with a double-digit growth of 15%. The currency and copper contributed about 3%. However, currency you can more or less neglect as almost everything is contributed by copper, which has then also the highest impact on the transportation segment. On the net sales side, we grew by 17% or 125 million. Organically, we grew by 14%. The highest organic growth had the industry segment with 22%, followed by the communication segment, 18%, and no organic growth or flat development in the transportation segment. Also here, currency on copper, 3%, almost all related to copper. On the cross-margin side, we had two different semesters. A very, very strong one in the first half year, and let's say a still decent one in the second half of the year. So overall, year over year, we could still improve our cross-margin by almost three percentage points. And why this was possible? First of all, mix. You have seen that our high margin business in the industrial business grew the most in sales, followed by actually also the communication business with a high share also in America and a decline in Asia. So this mix in terms of market segment and also geography allowed us to sell more high margin business than in the previous year. The second topic is actually efficiency. First of all, due to the higher volumes, we had a better fixed cost absorption and we have an ongoing cost optimization program when it also comes to production cost. On the other side, we had already started to have headwind in particular in the second half of the year with respect to increased material prices, but also due to higher transportation costs. Going forward, it's important that we can pass on those price increases at least with a certain delay also to our customers. Overall, it has to be said that there was no production stop due to material shortages last year. However, we also now experience much longer lead times than a few months ago. On the operation expense side, we increased the absolute amount by 20 million to 226 million. However, relative to the turnover, it was a decline from 27.9 to 26.2%. The highest increase we had in R&D expenses because we want to continue to have a high innovation power. And in the meantime, we spent 6.5% of our turnover in R&D expenses. The highest increase we had in the industry segment. The second high in growth was in sales and marketing costs there. It was really volume driven because there not all costs are normalized yet because we were still restricted to travel. So I think there will be some more costs to come when going forward when our sales persons can travel again, hopefully this year. Overall, on the EBIT side, we have heard it's a new absolute record amount for Huber-Suhner history with 105 million EBIT. This corresponds to a 12.1% EBIT margin. A very high contribution from the industry segment with a margin over 20% with 21%. Communication more than doubled to a double-digit margin of 12.2%. And as we heard before, transportation due to some pre-investment and due to no organic growth was still behind our expectation with 5.1%. Overall, the absolute EBIT grew by more than 70% compared to last year. On the financial result, it was a weaker result, but it has nothing to do with the FX, because there we had a similar level. However, we had a higher negative other financial result, which mainly was caused by more cash repatriation from China, where we have to pay 5% withholding tax, which cannot be reclaimed. Furthermore, we also started to pay negative interest last year. On the group tax rate, we achieved another year of a very low tax rate, and the expected tax rate with 19.2% was even lower than the previous year. I think here we benefited from a very good mix, so from a high share of profits in Switzerland, but also in China, where we actually have a high-tech status. Furthermore, there were several elements which were able to reduce the effective tax rate to 14.7%. I would like to mention that we could use loss carry forwards from our previous acquisition in Polartis. We also had R&D super deduction here in Switzerland, but also in China. And also we have another preference regime in the U.S. where when you do actually export out of the U.S., in our case to Canada, we also benefit to special discounts on the tax rate. So overall, this low tax rate is obviously not sustainable. So I expect already a higher tax rate this year and then even more in 2023, because in 2023, the UK has already announced a tax increase. And secondly, also, Huber sooner will have to apply the OECD 15% minimum taxation. As you don't know all the details, how it's really calculated and what is still allowed in terms of, let's say, the Swiss finishing, I still expect that we'll have to pay a certain top-up tax here in Switzerland, and this will lead to a higher tax rate also for Hubersun. On the bottom line also here, a new record result with 87.3 million. This corresponds to a 10.1% return on sales. Therefore, also our earnings per share increased significantly from 266 to 4.45. As already indicated a year ago, we are in a high investment cycle level as we invested last year 51 million. First of all, we actually consolidate our two sites in Teficon to one site, and therefore we are building a new building. We are constructing a new building. We also significantly invest in new production equipment, in particular with respect to this radar antenna in Switzerland, but also in Poland. But also we invest significantly in our IT infrastructure when it comes to digitalization or also technology. when it comes to network security. So I expect also a high CapEx level this year in 2022. And midterm, I would probably expect that it will then normalize on a level of approximately 5% of our sales. On the balance sheet side, I think we saw an increase in particular in net working capital position due to the higher activity last year. But also the cash improved to 220 million. We are now also debt-free. We repaid the last million out of the Becatel transaction. And also the equity ratio is on a high level with 77%. On the cash flow, I'm in particular satisfied with the first line, the cash flow from operating activities, because for me always the 100 million is an important threshold. And if we are able to achieve more than 100 million, it shows that we had done a very good year when it comes to cash flow generation. This allowed us also to absorb the higher amount of our investment and still growing our free operating cash flow. On the free cash flow level, it was 15 million. This was also impacted by more acquisition of treasury shares, and I think you can see that here. As you know, we have announced last October that we plan to buy back up to 5% of our registered shares within the next three years. Until the end of last year, we bought back 0.7% of our registered shares, and this gives the volume a cash out of $11.8 million. Now, if I look now at yesterday, early March level, we have in the meantime bought back 1.6% of our registered shares, which means that we have almost completed one-third of this share buyback program. And despite this running share buyback program, we stick to our earnings-orientated dividend policy, which is 40% to 50% of our net income. And due to the new record level on net income, we also can propose a high ordinary dividend of 2 francs per share. These 2 francs per share corresponds to a 45% payout ratio and a is actually a very nice contribution also to our shareholders. So by that, I can already conclude from a financial point of view. It was really a very pleasing year with record results, with very high growth on the top line, with new record levels on EBIT and net income, also supported by a low tax rate. And as presented before, we also reached 100 million threshold when it comes from cash flow from operating activities. Unfortunately, now, after this very pleasing information, I have to turn to a very sad information. I think we're all still shocked about what's going on in the Ukraine, close to Europe. But we expected a lot of questions out of that, and that's why we wanted to summarize quickly what we can say, what it means from a Huber-Suhner point of view. First of all, we have to say that last week we have suspended all our business activities which are directly or indirectly related to these regions. And it goes without saying that we will obviously stick to all sanctions which are coming from Switzerland, the EU, or the US going forward. We serve this region with all our three market segments, but by far the largest is railway, which almost makes two-thirds of the turnover we make in these regions overall in the last few years we made normally two to three percent of our group turnover in mainly in russia we do that we do that via our distributors which are also supported by a few colleagues in moscow with our rep office But overall, we can say we don't have any production facility nor we have any strategic supplier base in this region. So this means the direct impacts are, let's say, manageable from a hoover sooner point of view. However, all the indirect impacts, and you have seen yesterday that we had the euro at the parity, but also the exploding, escalating raw material prices, also the constraint on the transportation lines. I mean, there are several impacts we can't quantify. All of us don't know what is going to happen in the next few days and weeks. So that, from a Huber-Zullner point of view, could also be much more severe than just the direct impacts. So then I pass over back to Urs. He will, as I said, talk about our sustainability report and give you some more details about our outlook for 2022.

Thank you, Ivo. As Ivo has pointed out, I will cover in our last session the sustainability, the strategic focus, the trend and the outlook. And I will start with sustainability. I guess we all took peace for granted. Hence, it was not a big topic. The agenda topic number one was sustainability. And now, of course, with the war in Ukraine, the tragic war in Ukraine, our focus is on how we can secure peace in the rest of the world and bring peace to this conflict region. Nevertheless, we believe that also with this important and strong focus on this conflict region sustainability should remain very high up on our agenda as it is also interlinked and as we can now see that dependencies on regions for energy is in peaceful times not a bad thing, but in conflicting times it can be quite difficult to manage. And that's why our contribution as individuals and of course as a company to sustainability remains of great importance. Let me give you a few details on how we deal with this topic. First of all, and that's not very unique, but still important to highlight our aspiration. is to create sustainable value for our stakeholders by, first of all, improving our economic results, but also looking at our business and production processes, looking at how we interact with our environment and how we can contribute on the social level as well as it covers our good governance. Of course, there are many, many topics we can talk about and we are also dealing with quite a wide number of difficult topics. While we deal with all those topics, we have declared three of them as focal areas. because we believe they have from relevance and impact, from a business relevance and from impact relevance, the highest contribution to our sustainability approach. And that's sustainable growth because we believe firmly in the fact that only an economically sound and successful company can contribute to sustainability. Then it's our greenhouse gas emissions and also our involvement in community and society where we have major locations and sites. Those three topics are the focus topics while we deal with all other topics that are displayed here on this chart. The scorecard related to these three focus topics shows that for sustainable growth, today we have 23% of our sales coming from our growth initiatives. Our growth initiatives, they're supposed to make the company successful going forward economically, but they also relate to quite well to sustainable markets. The target here is to have 33% by the year 2023 and we can achieve that by above average growth by these growth initiatives. Our greenhouse gas emissions have been at 16.8 tons CO2 equivalent based on scope one and two in the year 2015. That is our starting point. We have committed ourselves to reduce these emissions by 50% by the year 2025. And further to that, we have committed to a net zero CO2 target by 2030. And we are quite well on the way to reach the 2025 target as we have come down already quite significantly. And we have about 60, about two thirds of our way done. The community involvement is a topic which is very close to my heart as well as we would like to really be seen in the communities we are well embedded, be it in Switzerland, but also abroad as a good corporate citizen. So we have donated to the communities nearby our major sites close to half a million in 2021. And our objective is here to spend at least 0.5% of our budgeted EBIT or half a million Swiss francs, whatever is higher in the coming years. With these targets in mind, I would like to also highlight a bit our contribution when it comes to doing business. And we have prepared three business stories for you. The first one is from the energy sector. Transportation of energy over long distance is an important thing to make grids stable. It's also important to secure energy supply, but it comes at a loss tag, at the price tag, because these transmission lines, they lose quite the longer the transmission line is, the more the energy loss is. One way to deal with that is to go to high voltage DC, to high voltage direct current links. And the first example from the energy sector is exactly such a project, which links Denmark with the UK with a high voltage DC link, which goes over 767 kilometers. And of course, this link has substations on both ends. and they need to be controlled. And in order to control those substations in modern days, it is done by a set of fiber optic solutions. We have been the supplier to these substations on both ends of all the fiber optic assemblies and patch cables, and hence we contribute to a safe and reliable power supply. exchange between the island of UK and the European continent. The next example comes from the communication side. It concerns fixed access network transmission. And here, as I mentioned at several locations, we are confronted with ever increasing data traffic, which requires the reinforcement of those data links. Now you can either bury more fibers Or you can have faster electronic equipment, faster lasers. Or the third option is to use passive WDM system, which boosts the capacity of existing fibers by factors. And the nice thing is that the energy consumption, as well as the great energy for burying new fiber optic cables, can be reduced significantly, in this case by 80%. So it's a very cost efficient, but also very economical solution. And since the acquisition of Cube Optics in 2014, we have this technology at hand And we see also quite a good future going forward with business respect, but also with respect to sustainability. So in that example, we have supplied those WDM passive system, and by that we could avoid that new fibers had to be buried in the ground. The last example comes from rail communications. Now, rolling stock usually has a lifetime of about 25 to 35 years. Then it's outdated. But in fact, the rolling stock material would have another 20 year of lifetime. just from a mechanical point of view. The problem is that the passengers, they are not satisfied with the comfort and also this old rolling stock equipment is not complying with the requirements regarding communication and information. So it can be that there is a need for refurbishment of rolling stock material coming because the passengers want more comfort. In this example that we share with you, it came from the regulation side as the national technical specification. Note this was released in the UK related to rail system accessibility for handicapped people. With other words, the old rolling stock had to be made compatible and accessible for handicapped people. And that was the trigger and the starting point for a quite substantial refurbishment of an old fleet. And by that, Basically, the mechanical side of this rolling stock equipment could be kept while all the interior as well as the communication means have been replaced. Hubert Suhner was the supplier of the rail communication equipment, including, of course, passenger to ground communication, ground to train communication, as well as Wi-Fi, closed circuit TV, passenger information and passenger counting devices. And by that we have contributed to a project which has resulted in a lifetime extension of another 20 to 30 years of old rolling stock equipment. This project took place in the UK. With those three stories underlining and highlighting our contribution from a business side, I would like to close the sustainability part by just displaying the reportings and ratings. So we have committed to a science-based target. As we could already explain, we are a member of the CDP, we have signed the UN Global Compact and we are also rated by a different agency, one of them being Ecovadis, which rated us among the top 9% of about 700 companies worldwide in the field of electronic components. With that, I close the sustainability part and I move over to the strategic focus, the market trends and the outlook. When we look at the economic environment and when we look back particularly at 2021, I can say that all and most or all basic trends in our key markets were favorable. And despite these fundamentally positive market trends, it wasn't a very easy year last year because we had already last year certain uncertainties and risks that we had to manage. One were the geopolitical tensions, which not just... are on our radar since the invasion of Russia and Ukraine, but already before the strife for becoming the world economy number one between China and the US, but also some other conflict areas kept us quite busy. On the other side, this economic rebound was quite broad and not just affected Huber sooner, but basically the whole industry and with that the entire supply chains. And this recovery from COVID effects, while COVID was still present and still some measures in force, resulted in rising material prices and very scarce transportation resources. As a result, we see inflation levels in countries like the US, which we haven't seen for quite a long time. Furthermore, this rebound has also resulted in shortage of chip, which is also relevant for some of our products, but which is mainly relevant for our customer. It has had an impact on raw material supply, transportation capacities, as I mentioned, and has put pressure on the entire supply chain. To highlight a bit how that was, and Ivo Wechsler has already pointed out that we were never lying down and also we never caused a line down on our customers it was extremely difficult to get enough materials on stock to keep our productions running and that went so far that sometimes we had to buy instead of large quantities from one source very small quantity from many sources and it goes without saying that this has had quite an impact on the efforts to be done to get a safe material supply on the inbound side. But then also once you had produced the materials and the products, then it was about securing transportation capacities also for the outbound and that was another another challenge in 2021. Nevertheless, and coming back to the more positive things, we believe that these basic trends remain favorable. And in particular, we believe Huber's owner is very well positioned to benefit from the favorable market trends. First of all, we have a very strong technological expertise and combined with operational excellence, we are a resilient company that is well positioned to benefit from these growing markets. We strive at all times for a balanced diversification and without being really too diversified, we are trying to focus really on areas that offer from a macroeconomical point of view, a positive development. So we strive for a healthy mix. of current businesses in mature market which are still developing favorably and with a focus on new opportunities for future growth. The portfolio of these activities is actively managed. Old things which do not promise favorable development will be abandoned and new things are coming on top. And by managing this portfolio, we actively align with arising and evolving megatrends that should create for a macroeconomical environment in those markets and applications that are favorable. And then when it's about capturing those opportunity, we can rely on our innovation culture on our ability to act as an early mover on those trends and by that we can position ourselves early on in a market and generate also the necessary product differentiation which results in high margins and in attractive pricing power. These are the dimensions of our strategic focus. We have our five core markets on the left. They are complemented by four, you can call it niches. We call it focused market verticals in the industrial segment. which is energy, high power charging, medical and process industry. And then we used to have our three growth initiatives. We have added two more so that we have five growth initiatives. The old ones are aerospace and defense, where we are approaching 100 million. We have data center, we have electric vehicles, and we added two more in the segment of transportation, which is rail communication, and also the autonomous driving, or as we call it, ADAS, Advanced Driver Assistance System. It's a bit difficult name. Further to the right, you see opportunities with growth potential. That's a portfolio of, I would say, 20 to 30 ideas that we pursue, which shall sooner or later result in new growth initiatives. As you can see, we have now defined two new growth initiatives. They are coming from these opportunities with growth potential. And it's our objective to constantly have a field up funnel to the right with ideas that make sure that we have always enough new things in the pipeline. This creates a portfolio of attractive markets aligned with the megatrends being diversified, resulting in a resilience without being defocused. The solutions for the industry markets, we mentioned them. Aerospace and defense are a core market. That's applications up in orbit, satellites and everything that's in space. It's commercial aircraft. We have relatively little business. And it's defense applications that also fall under this category. market segment. Then process industries, general industrial, the medical device, mainly products for cancer treatment. We have the core market test and measurement, which is dealing with test applications. There we have products going into equipment from Keysight, Rohde and Schwarz, but also connections between test equipment and the products to be tested. We have energy. We are market leader for the cabling, the control cables for wind towers. And last but by no means least, also the high power charging for electric vehicles goes into the industrial market. People ask me always, why is it not transportation? Because it is related to that. The driver behind is electromobility on roads. But our customers here are power companies. like a company like ABB and other electrical engineering companies. And that's why it is in the industry segment. The applications in a segment are defined by the customers that we serve. So in this case, high power charging is not automotive, but it's energy. The market trends in industry, I think they are favorable and this is important for HuberSUNA. You could see how important the contribution of this segment is to the bottom line. But we can observe that the need for communication solutions in industrial applications is increasing and further increasing. It concerns mainly applications which are safety critical, where reliability is really key. where availability 24-7 is of utmost importance and where quality really pays off. And that's where we have an ideal environment to develop as HuberSUNA. High precision components with a maximum signal integrity, but also low weight and durability is key in test measurement. We see, and that's not... not all good but mainly good we see this low orbit satellite constellation developing further you take one web an airbus subsidiary you take elon musk that is driving a program forward. And these low orbit or near space programs, at the end, they cover the world from space with a relatively dense mesh of satellites bringing mobile communication to each and every corner. Now, the downside is obviously that you have a lot of satellites in near space, which is criticized by astronomers. But now, for instance, we see that the program of Elon Musk is up and running since a few months and he has granted access to the Ukrainian army in order to keep up communication between their troops. He's done that in an act to support the Ukrainian people to defend their territory. So it's not all bad, but it's, of course, there are always two sides of the coin. We have these fast charging applications which are further growing. We have in this market defended the leading position. We are clearly the market leader for fast charging applications. And we see further opportunities intensifying the network of fast charging stations based on 500 kilowatt power stations. But we see also the trend going to even higher power. megawatt charging, and we see also Asian countries that are trying to catch up with regards to developing the network of fast charging stations. Then last but not least, and we've always said it, the desire to feel safe fuels also the demand for aerospace and defense applications. And while we all would like to have peace, and see a world where there are no weapons, we acknowledge now more than probably ever that if somebody has weapons, the only way to counter this aggression is with other weapons. And that sadly drives also our applications in this area. And last but not least, in industry, we believe that the new market segment organization, where we bundle really all our products into a solution, whether they're coming from fiber, from RF, or from LF, has the highest benefit. In the communication market, We have the business with the equipment manufacturers. That's the upper right corner. Companies like Samsung, like Ericsson, like Nokia, like Cisco are our customers there. Then the data center applications fall into the communication market and then we have mobile infrastructure and fixed net infrastructure, while in many cases the same customer has a mobile network as well as a fixed network. And here we see that particularly the last two years have shown how important the communication infrastructure is for the functioning of our society. It's also not the first time that I highlight that. We have now seen investments strongly picking up in this market, mainly driven by 5G. 5G is being rolled out since a few years, but now these rollouts have really picked up momentum. And there will also be, once 5G gears are installed in the field, there will be an evolution of this 5G infrastructure towards higher data. You take, for instance, the example of the 4G network. you may remember that in the beginning of 4G signals on your mobile device, you had between three and seven megabit per seconds. Now you stream high resolution videos with a 4G network. So also within a generation of mobile networks, there is an evolution towards higher data rates. So that hopefully for who was sooner, once the gear is installed, it's not all over, it will continue. And typically, Such a generation of mobile equipment lasts about 10 years. Usually after 10 years there is a new generation. The industry talks about 6G already, while 5G isn't even fully installed. But on the other side, countries which have just recently invested in a 4G network like India, they will not dare to move too fast because they need a payback of their 4G equipment in the field and they will wait until they have enough. cash flow generated with their investments to go to the next step that's why not all the operators globally will say now hooray let's move to 5g and go so that will be a process that will take time and right now the momentum is clearly in the in the americas for us and in some european countries Densification, higher capacity, better coverage, shorter latency, very important are the key words here for mobile infrastructure while Internet of Things and also the expansion of data traffic in the mobile network is the driver for the volumes in the whole network, which requires that we also reinforce the fixed net. So there is no mobile network expansion without the reinforcement of the fixed net. That's always related. And last but not least, networks, they are quite Richard, the dream of a network architect, is to sit in a control room and have full flexibility and to configure his network as he wishes and based and depending on the data streams and data volumes. Our optical switch offers exactly that flexibility on all optical devices. solution on the physical layer and we see that this technology is breaking through and making a headway in this market so I'm quite positive for the technology that this Pilates acquisition has brought to Ubersuna. Last but not least, transportation is split in rail and road. We have on rail, we have the cabling of rolling stock where we are market leader. We are now focusing with a growth initiative, particularly on the communication part. There we have a large share of fiber optic and in particular RF products. And we can really leverage on our free technologies and on the market access from the cables. And on the roads, our focus is, or since quite a while, is on electric vehicles, on the electric circuit, the high voltage circuit, and here mainly on commercial vehicles. And we have this new growth initiative, which we call ADAS, Advanced Driver Assistance System. It's radars, antennas for distance radar systems of the next generation. And that's our solution, or these are our applications in the transportation area. There will be a high focus on ecological mobility when talking about transportation. There is no other way. And when I say that there are two major things that need to be done, we have to continue to invest. in public transportation that is driven by electricity. It's the most ecological means of transportation today and there is no way how the world cannot rely on that. And that's why we believe railway has a future and that's why we believe in this market. On the roads, the transition is in full swing from combustion engine to either hybrid cars or fully electric battery driven. And with our focus on commercial vehicle, we have decided to go for the application that has higher requirements than the passenger cars, which suits us and our DNA better. Many people say, yeah, but battery trucks, that's not the future. I can only counter here that for all distribution logistics, battery trucks are better. the future because they do between 50 and 100 kilometers a day and they drive from the logistics hub to the retailer and back and they have defined routes. Of course, a battery truck that goes from Genoa to To Rotterdam, that's not a solution, or not yet a solution. There, most probably hydrogen will be the way forward. But I have to explain here always that also hydrogen-driven vehicles have an electric drive, and they have a high-voltage cabling that they rely on. And last but not least, to make traffic more efficient, to make traffic safer, the systems and sensors become more intelligent. They become more accurate. For that, they need higher resolution pictures. And we support this trend with our high resolution antennas that we have at the start to go into this autonomous driving race. With that, I'm coming to the end and to my last slide and the outlook. And we have decided on the basis of three very strong semesters starting with the second half 2020 at 10% and now two semesters at 12% that we will lift our medium term target range for the EBIT from previously 8 to 10% to new 9 to 12%. For the current year 2022, We expect on the top line, on sales, mid single digit percentage growth, bringing us to somehow close to 900 or above. And as far as the EBIT guidance for the current year is concerned, we expect the operating margin this year to be in the new medium term EBIT target range of 9 to 12%. We may specify a more narrow band in August when we present the six months result. For the time being, our medium term EBIT target range is also the EBIT guidance for 2022. And that all is valid with the declaimer at the bottom. The prerequisite for achieving our objectives and as far as growth and EBIT is concerned, we have to master the challenges such as the inflation, the strong Swiss franc, the bottlenecks in the supply chain and last but by no means least also we have to see hopefully soon an end to the armed conflict in the Ukraine which brings us additional uncertainties You have seen the impact immediate. What we all don't know is what its indirect impact will be on our markets. And with those words, I would like to close the formal presentation, not without drawing your attention to the financial calendar. I'm sure you have all noted down those dates. I would like to highlight particularly one date, which is a new event in our financial calendar. We have decided that after two years of very little time, exchange with physical presence that we organize a capital market day shortly after the presentation of the half-year results. It's going to be in Harisau. I invite you to mark this date in your agenda. It's a Friday, the 23rd of September. And the idea is really that we dive with you deeply into our applications and explain the mechanics of our markets and the drivers and how we position Huber-Suhler in those markets. And with that, the formal presentation has ended, and I would like to invite you to join the Q&A session. I think we do that with the audience first, with the audience present in the room, and then also the dear participants in our video conference will, of course, have the chance to ask questions.

If you now have three questions, the Forex Swiss francs to Euro is about the same level now. Can you give us an indication of what you expect through that? On your business, the second question is the high raw material prices. How far are you able to give these high prices to your clients? Are these price extensions accepted? And the last question is, may you can say how you started into the new year compared to the last year? Thank you.

I think the first question, Ivo Wechsler, can answer.

Our two most important currencies are the euro and the dollar, so we are long in those two currencies. We have also budgeted with a significant higher level than what we have today in the euro, so, for example, 1.08 to give you an idea. Obviously, it depends on all other currencies how they develop, but it will be a significant hit if the euro would remain at a one-to-one level. But we don't give specific guidance to what it would mean, because it depends on all other currencies. But it's the dollar, the most important currency for us.

Second question related to the increasing raw material prices and indirectly how good our purchasing power is. I would say our purchasing power is pretty good. It's not the same everywhere. We have some commodity markets where we are replaceable there. It's more difficult to pass on price increases, but we have also a majority of our sales related to markets where we have a high differentiation, where we are designed in, where we are single source. And of course, we use our position to increase prices as far as reasonable, as far as possible. The problem here is that there is always a time lag. By the time you get it from your customers, you have it already in the margin and probably the best picture to highlight that is that slide on our margins where you have seen an outstandingly high margin in the first six months last year and a negative trend for the second half. And of course, we have Already started to pass on these price increases on the purchasing to our customers in the summer, but there is a time lag and we are confident that we can break that trend and we can pass on a large part of that. And then to start into this year, that was your last question. I mean, it's a bit early. We have two months on sales and one month on EBIT that we know. And it's too early to say much, but we can say so far, I think the year 2022 has started according to plan.

Which phrase? There could be two questions, if I may. First of all, the guidance. the upper end of the bandwidth was already slightly overachieved this year. So I'm wondering a bit, how should I think about it? I see the headwinds from raw material, FX, et cetera. You have mentioned also probably increasing traveling cost. But how should we think about it? Is that known cautiousness of Huber and Sooner to not be a bit more aggressive on the upper end of this new bandwidth? And then second question is regarding corporate EBIT, which is also on a quite high level increase, roughly around 1 million. What are the reasons for this? Is this the new setup, or is there other reasons behind it? And how should we think about this going forward? So will it decrease or stay at a similar level? Thank you.

Yeah, the guidance, you have outlined that our guidance, the upper end is slightly below the 2021 result. And you ask if that's normal cautiousness or if we have factored in all the negative effects in the markets. You know, it's a thin line in my eyes between being brave and too brave. We have seen in 2021 a very strong performance as far as profitability is concerned. And the main factors of this very strong recovery is, first of all, the operational leverage from growth. And with a sales growth above 15%, obviously this operational leverage played very much into our hands. And secondly, we have also come out of a year with a very low cost base. Because in 2020, when we realized how severe the impact of COVID will be on our business, we have started to reduce costs. We have also announced a cost-cutting program. We have reduced our workforce globally. And last but not least, we have also reduced our expenses, particularly in areas that came for free, no traveling. little representation expenses. But it is a level of cost which we cannot maintain going forward. We will have to reinvest in a customer relationship. We mentioned it. We hope that our salespeople can see customers physically again. And I think we've done, like most other companies, like you all, extremely well in using virtual means. but you can only use that for a certain period of time and on the basis of a trusted and established relationship. And if you go forward on that basis at some point, you have to reinvest in that relationship. And we hope to be able to do that. And that's why we believe also on the cost side, we have benefited from very favorable situation in 2021.

The second question I... With regards to the COP costs in our segment reporting, I think you should apply the higher costs going forward because it's a more normalized cost. The previous year cost was really, as we have already heard, it was really some cost savings in 2010. 2020. Also, we had, let's say, a temporary salary cut. We had lower bonuses, lower share prices, and so on. That's why it was really not the normal year. So, the normal year is 2021. Compared to the previous COP, from the older, let's say, structure, we have now added, in regards to the M21 reorganization, we added some additional activities to headquarters, in particular the corporate communication, and that's why the overall level is also, let's say, higher compared to the 2019 corporate level.

Also for my side, three questions. One is the upfront investments in autonomous driving. Can you quantify the level? You said it was substantial. How substantial was that? And the second one on the gross margin, you showed us the sequential development, H1, H2. When you look at the industrial segment EBIT margin, it was kind of stable in H1, H2. Can we assume that the gross margin drop in the second half was mainly in transportation? And then again, the third one on transportation segment, can you give us a split between road and the railway today?

It's about five. So I will answer your first question with regards to the upfront investments in our distance radar business. I cannot give you the... exact number. But it is a very capital intense business. It's typically an antenna that goes into passenger cars shouldn't cost much more than a low single digit Swiss franc figure. And it's high-resolution 3D antennas. So the production processes are complicated. The technology is advanced. And we need a very, very high degree of automation. And capital costs account for a high share of the product cost. And we have announced the nomination of... of a radar business from a Tier 1 of the automotive industry, that's Continental. Here we can share the name, obviously. We are working with other Tier 1 automotive suppliers similar to Continental on additional design-ins and nominations. Already, the investments in continental business are substantial, so a clearly double-digit million of capex investments. And of course, with each and every nomination that we hopefully can announce in the next few months, this will increase. We invested in Switzerland and we have started with a second production plant in our Poland factory.

With regards to the gross margin, first half year, second half year, I mean, there was a slightly lower gross margin in all three market segments because the price increase and also the higher transportation costs started, let's say, to end up in all three markets. market segments. However, you are right that by far the largest impact was in the transportation segment. And there you should also consider that when it comes to higher copper prices in the first year, we have still some positive revaluation impacts because your inventory gets actually more value. So you have to up, let's say, make some, you have some positive impacts, but with this higher, let's say, standard cost later on, you're actually margin is getting lower. And we had some positive impacts on transportation with revaluation. And in the second half of the year, we didn't have that anymore. And that's why the drop was the highest. But it was also the highest cost impact. We have heard in particular compounds and chemicals. There we saw already last year significant price increases and drop. the transportation market segment was most affected by that. That's the other reason for why the cross-margin was most impacted in transportation.

And then the split in the transportation segment, roughly about two-thirds, a bit more than two-thirds is railway still. A bit less than a third is automotive. which is split in a decline in conventional part where we supply specialty cables into combustion engine applications. And then we have the growing EV and the ADAS is not yet contributing. Then we have a bit of component business, but that's a few millions.

This is Michael Schultz from JMS Invest. I have kind of two follow-up questions and an additional one. To these investments in autonomous driving, can you specify what the market opportunities for you, kind of the size and the timeline? of that. I mean, these antennas, do they go into the upper range vehicles? If you can say something about that. The second is on free cash flow, just a housekeeping question. On your slides, you show slightly higher free cash flows usually than In the free cash flow statement, what is the difference there? So, for example, on the slide for 2021, 51 million. If I look in the cash flow statement, it's like, you know, the capex part is like 45 million or so. Is there anything I have to add there for the future? And the margins in the transportation segment, you elaborated on the material price effect and also on this – autonomous driving investments, but what would be a margin there for you going forward in a normalized environment? What would be achievable there? In your assumptions for the 9% to 12% range for the group, what would be your assumptions for the transportation?

So let me explain a bit how this ADAS business works and is supposed to develop. Typically in automotive, you have a technology which you prove, and that undergoes very heavy testing. And when you pass all those tests with your technology, you get a nomination. And then based on the nomination, you can start to invest into the serial production. And then based on products out of the serial process, you get a PPAP and a full approval. And then from this moment on, volumes pick up in a typical Gauss curve. They reach the peak in year three, four, or five, and they last between six and eight, nine years. And that's the lifetime of a platform. It can also go a year longer or end a year earlier, but that's typically the life cycle of such a product. With this technology, we have achieved nomination. We are in the process of PPAP and get the serial production released, and then we will see first small volumes in 2022. And from 2023 on, we should see a small impact and then peaking probably in the year 2026. Each and every nomination, each and every project has more or less this lifecycle. And of course, by developing this more as a market rather than an individual business, we hope that we have five, six, seven programs running. Typically also for the automotive industry is that these new technologies, they are used in the high-end platforms, in the flagship platforms. And if you want to use our antenna, you have to buy a BMW 7 Series. But these technologies, they usually expand and make their way into more platforms and finally they end up everywhere. And that's of course the name of the game because you can't make a living on a BMW 7 Series platform. You have to get into the other platforms as well and hopefully into other OEMs as well. And there are different applications. There are short-range radars, and there are long-range radars, and they just cover different areas around the car. And our technology is independent of whether it's going to be a long-range or a short-range radar. The system isn't.

And your question with regards to the cash flow, I'm not 100% sure if I got it right, but I assume you wanted to know why I have investments of 51 million in the cash flow, with the cash flow from investing activities only about minus 45 million. So there are actually two reasons for it. First of all, the CapEx number, the balance sheet number, are based on FX spot rates at the end of the year, and the cash flow is average rates. So there can be a deviation. Secondly, cash flow is really cash flow. And this means some of these investments are actually prepaid partially or paid later. So it's not always when you add it to the system that they're already fully paid or they have to be paid partially early. So that's why it can also be temporary differences between payment and adding to the balance sheet. And thirdly, this level of cash flow from investing activities also contains some other items, such as when we have acquired roadmaps for when you do an acquisition or when you have a disposal of an equipment, there are also some other, let's say, items in this summary level.

And then the margin potential of ADAS. So, I mean, depends, of course, how you do the cost calculation, if you depreciate your investments linearly or over the lifetime based on volumes. But I would say over the lifetime, we expect clearly a profitability above the transportation segment average. So we expect that it's it's supporting the margin increase. Aha. We always said that for round, long, black cables going into trains, a high single-digit EBIT margin is good. It was our attempt to move into higher differentiated applications, namely in the rail communication as well as in the automotive communication. We expect that we can leave that range sooner or later and bring it in line with the group's average profitability. That's our plan. But it will not happen immediately.

from UBS. I have one follow up question on the time lag between the raw material prices, price increases and the increase of your prices. So how big is the time lag? Is it something like three months or more like six months?

I think it depends. It depends about the product. It depends about the customer. I think where we have probably the shorted turnover is in the communication area, so we can pass it on faster unless there is a larger project. On the other side, we have probably the longest and the highest backlog normally in the transportation segment, so it takes some more. And particularly... mention also on copper we can't pass on i mean we normally have hollow pricing this means we when you have an order we also have a fixed price for the copper and therefore we are normally hedged for that but we can't and later on we can't pass it on then the fixed by the copper price is fixed hedged and we don't make any profit on this let's say increased copper prices

And maybe a follow-up on this, how did this increase in raw material prices and also energy prices change something how you manage this supply chain? Do you intend to increase your inventories even further or also in terms of energy, do you intend to switch to alternative energy sources?

I mean, we have, as you have probably seen in the numbers, we have already increased our inventory levels. And I think we have to buy also some, in certain areas, some security stock because our lead times were much longer. So in order to get a secure... the supply chain has also sometimes a price tag to it. So I think we always review our supply chain, but often, I mean, we work with specified suppliers and specified materials, so you can't just change from one day to the other. I mean, we have already seen that our supply chain and suppliers were quite robust during the COVID crisis. So we have, let's say, we normally try not to have single sources, but in certain areas, I mean, you are confronted with just the fact that you are single source and you have just to accept the prices, otherwise they deliver to somebody else. So it really, there it's also a mix on what our suppliers are doing. There was another question.

I'm wondering if with your guidance of mid-single-digit sales growth for 2022, is this factored in, the 2% to 3% you lose in Russia, Ukraine?

No, the 2% to 3%, that's the annual sales, and it's not factored in. If the war continues for the rest of 2022, I mean, we will have an impact. And if it stops, what we all hope, relatively soon, then of course the risk will also disappear hopefully soon. So I think that gives the chance for the people in the video call to ask questions.

Anyone with a question may press star on one. The first question comes from Jörg Marquand from Thüringer Oberland Medien AG. Please go ahead.

Thanks for having me. I have a question with regard to your workforce. You write that The overall workforce is increased by 178 positions, whereas in October 2020, you've announced to cut 250 jobs until mid-2021. So how did that come along? And why is Switzerland apparently the only country not affected by an increase of job positions? Which location in Switzerland was more affected by reductions, PEPICON or HERESAU?

So we have decided 18 months ago based on the outlook at that time to reduce our workforce and one of the key measures was to close our factory in Brazil. That has been fully implemented and that project could be closed early 2021. The workforce in Switzerland, we have reduced mainly based on natural fluctuation. We have then, due to the upswing in our volumes and in the business, we have then been forced to rehire people in Switzerland in a first instance and in order to react fast, mainly based on temporary people. So if you look at Switzerland, we have in terms of fixed employees, the number is down. In terms of full-time equivalent, we are back to where we were before the announcement. This is due to the fact that we have tried to increase our production capacities, mainly production capacities with temporary forces. The sites have, I have to recall that there is not a significant difference between the two sites in Switzerland.

Thank you.

Gentlemen, so far there are no more questions from the phone.

from the room. That doesn't seem to be the case. Then I would like to thank you for your interest in Huber Sooner, for participating in the presentation of our annual results 2021. Thank you very much. Wish you a good day. Hope to stay in touch with all of you. And to the people in the video call and for the people in the room, a cordial invitation to join us for a small April lunch. Thank you very much.