Huber+Suhner AG

Welcome to the 2024 Half-Year Business Results presentation of Huber & Zuner Group Conference Call and Live Webcast. I am Alice, the Cover School Operator. I would like to remind you that all participants will be in listening only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. Webcast viewers may submit their questions in writing by the relative field. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Urs Huffer. See you. Please go ahead, sir.

Good morning, ladies and gentlemen. I would like to welcome you to the presentation of Hubert Zuno's first semester result 2024. As in the past, we will have three sessions followed by a Q&A. I will introduce you in the first part of our presentation to to the figure and give you an overview then our CFO Ivo Wexler will take over from me and he will do a deep dive into the financial result after the first six months and I will conclude the presentation with an outlook and more details on how we see the markets developing and also how we see the business performing at the end of this year. When we have a look at the Figures overall, what sticks out is certainly that we have a strong upturn in demand and an order intake which grows versus last year by 14.9%. Consequently, we have a book-to-bill rate which is clearly above 1, and we have been able to add over 80 million of backlog in the first six months of this year. In order to understand the sales, I think it's important that we also highlight where we come from. And we have a closer look at how the last year has developed. We have had in the first six months still a decent business environment, particularly in the first quarter. And then we have seen more difficult environments approaching in the second quarter. But overall, The comparable basis from 23 from the first semester is actually still a very strong performance as far as net sales is concerned. Consequently, the 430.6 million sales that we have achieved in the first six months this year compares not very well with the first semester last year. We have been reporting 9.8% less sales. And if you just take the organic development, then we are down by 7.3%. So we lose about 2.5% due to copper and currency impacts. But when we look at the last year, The second half, we have seen a completely different pattern. And when we compare now the first semester of this year with the second half of last year, then the picture looks much better. And here we can see that sales has been growing by 15.2% compared to the second semester last year, which we consider a turnaround situation. The profitability... consequently has suffered a little bit from the lower sales in absolute terms, but just slightly as percent of net sales, while a year ago we were at 9.8%, and that full year at 9.1%, we could close the first semester at 9.6% on operating profits. The net income, even in percentage, was a bit higher than last year at 8.1%, and overall we consider the profitability very well within our mid-term EBIT target range. The profitability in the different segments has developed differently. We will come to that in the following slides. The industry segment still showing good profitability, and we believe in the industry segment we have now reached the bottom, and that can be underlined by an order intake growth of 11.5%, even versus the first semester of 2023. So overall, the order intake turned positive in the first six months, 2014. The demand was driven mainly by three sub-markets or market verticals, which account for 75% of the industry segment. In first place, I would like to mention the aerospace and defense business, which has been at the forefront of growth in the industry segment and, as expected, could confirm the positive trend from 2023. But also the second largest market vertical in the industry segment, the test and measurement market vertical has reported order growth. And also in the high power charging area, we could return to order growth in the first semester 24. Net sales, on the other hand, was impacted by the lower order intake towards the end of last year and has declined by 15.5%. Consequently, also the operating profit has suffered a little bit and that came down to 17.0%. Overall, we consider that level of profitability still solid. In the communication segment, we see the most dramatic change versus last year that can be seen from the order intake, which climbed by 45.1% versus last year. In the communication segment, we still had good sales in the first six months, but we have seen a real collapse of the North American business in the first semester last year. and consequently the order intake only reached a year ago 148 million, versus that figure we could add the 45%, which gives us now tailwind for the months to come. Net sales, as I said, was still okay a year ago, and we are on the way to recover versus last year, but we were not quite there, and we fall short by 8.2% versus last year. We have also seen an impact on the operating profit thanks to the cost measures which we have initiated in the second half and also slightly better gross margin, less write-offs on the inventory and adjusted capacities. We have seen a turnaround and the operating margin climb to 6.7% versus 3.7% a year ago, which is almost doubling. At the forefront of the turnaround, we see the data center growth and also in orders a strong upward trend in Asia Pacific, namely in India in the mobile communication area where we have been able to capture a large project with an Indian operator. And that was the reason why the order intake was so high in the first six months. And with that project, we could also compensate partly for the downturn in other parts of the world in the large mobile communication infrastructure market for Hubersurna. In the transportation segment, we still report solid profitability at slightly lower volumes. You may remember that transportation was the A strong pillar last year, we could report a real turnaround situation. Transportation was coming out of a phase with lower profitability and report a 10.5% EBIT margin. A year ago, we were not quite able to keep that level of profitability, but we consider the 8.9% EBIT margin still solid. We have seen different patterns in the two main markets that we address with the transportation segment. In railway, we have seen slightly lower order intakes and slightly higher sales. So there we are on track. And the recovery which took place in the last year in the railway sector has at least prevailed. On the other side, our automotive business suffered in the first six months. We see that particularly on the EV side, where HuberZone focuses very much, and in particular on the commercial EV side, we see a delayed pickup of the market. We have all major OEMs that have platforms ready, but we see a delay in the volume pickup as customers are don't accept the new technology so quickly as originally planned. And the same effect applies also for our ADAS growth initiative. There we also see a delay of the pickup. Here we address the trend of autonomous driving. And in this area, there is also a delay in the pickup of volumes with our sensor technology. When we have a look at the three market segments, you can see that the year-on-year decline is equally spread. We have the industry segment falling short with the 15.5% that we have already reported, but also communication and transportation so that the distribution of business remains well balanced and we remain a diversified company with a portfolio of three equal segments. When we have a look at the regions, we see little shift between the regions. Also here, the decline of net sales of 10% is almost equally spread. Europe still accounts for 55% of our business, while the Asia-Pacific accounts for 27% and the Americas for 18%. This is on net sales basis. And with this very brief overview, I would like to hand over to our CFO, Ivo Wexler, who will go together with you into the details of our first semester figures.

Thank you Urs. Also a very warm welcome from my side. This time, I actually start with an overview slide with respect to the last five semesters with the most important KPIs, order intake, net sales, and the EBIT margin. And you remember, I think 2022 was the most successful financial year of Huber's owner, and then we had still the very good first half year, 2023, as already explained by Urs. And then second half of 2023, was really much lower volumes and consequently also a lower EBIT margin. But you can see here that now we have, let's say, achieved a turnaround and we see a clear upward trend compared to the second half of last year. Notably, and most important, I think, is the order intake level with 521 million, which is the highest number for one semester in the Huber-Suhner industry. So now let's go into the details. This 521 million means 15% growth. Out of that is actually 18% organic growth and 3% decline for the things currency portfolio and copper were predominantly coming from the currency impact. On the positive order, Improvement, we have two segments with a double-digit growth, 13% in industry, mainly dribbled by A&T business, and then 50% in the communication market segment. And there, the lion's share is this Indian project, this 4G rollout where we have an Indian, so it's by far the largest project in the first half of 2024. Transportation, we've heard a certain decline on order intake level, mainly driven by the weak automotive environment. On the net sales side, minus 10%, whereas three quarters coming from organic decline and one quarter from currency portfolio and copper. There, all three market segments have a decline versus last year, also organically with a double-digit decline in industry. We've heard there the major reason was actually the HPC business where we had very low orders and in general, the weak order intake in the second half of 2023 lead to this situation. A positive development we have on the gross margin. We have a gradual improvement to 36.2%. I think the reasons were manifold. First of all, last year we reduced our production cost base due to, let's say, due to the lower volume. So now we can benefit from that. Secondly, we now also have, due to a normalization in the supply chain, we can benefit from lower material prices. And also, let's say, the overstocking overall came, I think, to a large extent to an end. And that's why this year we had lower inventory adjustment. And finally, also the contribution from the higher margin growth initiatives were slightly more than 12 months ago. And this all lead to a quite good growth margin of 36.2%. On the cost side, there was a reduction year over year of 6 million from 121 to 115. The major reason was lower G&A or so-called administration cost, whereas sales and marketing was unchanged and also R&D was only slightly lower. So that's why we have also invested into the future and continue to invest in high R&D expenses. On the EBIT development in the three market segments, we have seen it before. Here, a short summary. I think industry still good with 17%, lower compared to last year, but significantly higher compared to the second half of last year. So 17% very good. Communication almost doubled to 6.7%, which... hopefully some further upside potential when they get more volume, and transportation down from the very high level of last year, 10.5% to 8.9%. There we really also see slightly lower volumes, but also the price pressure we have seen in particular in this segment. Overall, the EBIT margin is 9.6, almost on the same level as last year, and well within the midterm target range. For those who have already dig into the financial report, have probably seen that if you would report EBITDA margin more prominently, there was even an increase on the EBITDA margin compared to last year. Then on the currency situation, we have a differentiated picture, as you can also see here. if you compare to the beginning of this year there we see that there was a depreciation of the Swiss franc these are the brown columns there where all currency gets stronger versus the Swiss franc when we compare but half year average rates on those two semesters you can see that most of the currencies were still let's say weaker and this is actually the relevant FX exchange rate for the P&L However, unfortunately, I think also the CHF bonanza is a little bit over. You have experienced also the beginning of August. As soon as there is a political instability or some nervousness in the financial markets, we see a strengthening of the Swiss francs again. And I think that happened early August. So I think we can't expect that this positive development from the first half year will continue until the end of the year. On the net financial result, there was an improvement compared to last year. On one side, we could get a higher interest income from our net liquidity, in particular here in Switzerland. And on the other side, we had slightly lower FX losses also due to lower hedging costs. Overall, an improvement compared to last year. Our group tax rate is still on a low level. Significant reduction With respect to the expected tax rate, so there the reason is that we have actually higher profits in low-tax countries, but also the effective tax rate is lower than last year, only slightly, because on both years we actually benefited from R&D deductions in Switzerland, but also China, but also from other tax benefits, for example, in the U.S., As already mentioned in March at the press conference, Hubert Sunner will be impacted by the OECD minimum taxation in 2024. With 15% minimum taxation, I think we have the advantage that there is also a substance carve-out. This means that if you have a lot of Fixed asset and a lot of personal in Switzerland, you get a certain benefit or a certain discount. Nevertheless, in Switzerland, we will be impacted, and that was already factored in in this tax rate. But at the end, we will see at the end of the year how much it will be. On the balance sheet side, I think there was an increase in our net liquidity with 40 million compared to last year, and in general, an increase on our net working capital position both on the asset but also on the liability side. I think the major driver was also the Indian business where we have longer payment terms on our trade receivables but also on our trade payables. And that's why there was a double digit increase in those two positions. On the cash flow, overall a doubling of the free operating cash flow to almost $20 million. supported by a slightly better cash conversion on the operating side and slightly lower investments. Nevertheless, it will continue to invest significantly, so often it's also depending on a project, if it goes in this period or into the next one. You have seen a slightly lower dividend, and last year we completed the share buyback program, which we have actually cancelled this year after the annual general meeting, which you can see in our equity statement. Overall, the free cash flow minus 13 million compared to minus 38 year over year. By that, I'm already at the conclusion side. I think overall, we have seen a strong operation performance with a lot of good development, very strong order intake growth, debit margin back in our midterm target range, low taxes, and also a decent cash flow, I would say. We have still, due to a low ordering take in the second half of last year, still organic sales decline. But with the order backlog, we are convinced that we can change this picture also in the second half of this year. With that, I hand over back to Urs for the outlook.