Gurit Holding AG

I welcome you to the presentation of our first half 2022 results. I'm here in GURIT's corporate office in Zurich together with my colleague Philip Wirth, our CFO. Let's have a look at today's agenda. I will start by providing you a business update, highlighting the key events in the first half of the year. Philip will provide details on the financials before I will wrap up and give you our view on the outlook for the full year. Following the presentation, we have scheduled a Q&A session. Let me begin with the highlights of the first half. GURID achieved the revenue of 234.8 million Swiss, which was impacted by a lower demand for rotor blades of our Western Wind customers. The operating profit margin of the first half is 8.4%, excluding the gain on the divestment of the aero business and adjusted for restructuring and impairment charges, The adjusted operating profit margin is 2% of net sales. The OPE margin is negatively influenced by three factors. Inflation of costs for raw materials, energy and freight. Ramp up costs in our new plants in India and Mexico and a lower demand for wind blade molds of our Western customers. As an immediate countermeasure, we have initiated a dedicated cost out program, which I will introduce to you later in the presentations. While the wind market sees challenges, our lightweighting business continues to exceed our expectations. We saw strong double-digit growth in both the marine and industrial segments with healthy margins in the first half of the year and anticipate a similar performance in the second half. As separately communicated, GURIT divested its aerospace business earlier this year, and in April we announced the acquisition of 60% of Fiberland Composites, to complement our wind product portfolio. This was an important enabler on our trajectory to serve our wind blade customers as a full solution provider. We see some headwinds and uncertainties in the wind industry. We are addressing these with additional measures and continue to execute our strategy 2025. I will highlight a few examples on the coming slides. We inaugurated our new wind campus in Chennai and successfully launched production. We booked the first revenues in June and now ramping up the capacity, so far flawless and without major hiccups. A great job by our teams. What makes Chennai special is that we combine all our different wind businesses underneath one roof. mold making, PET extrusion, engineered core material kits, and from October this year onwards, also carbon-pultruded profiles. In addition, we take advantage of the availability of highly talented engineers and strengths in our local R&D and technology teams. Consequently, we already made the necessary decisions to increase our manufacturing capacities on site and extend the wind campus in Chennai. Strengthening the non-wind business is part of our strategy. One of the main levers is to sell PET in multiple applications while using the economies of scale from the wind business. We continue to see an increasing strive towards sustainability that drives boat builders to use recycled PET foam as core material. Same trends in other industry segments. Recycled PET being used in many architectures, building and transportation applications. We have the right product, we have the right footprint, we have a solid cost structure. This is one of the reasons why our marine and industrial business is currently growing faster than the market. A quick recap on the acquisition of the majority stake of fiberline composites. FiberLine is a manufacturer of glass and carbon fiber protruded profiles for the wind industry. Headquartered in Denmark with the manufacturing sites in China and soon in India, as I mentioned before. FiberLine's strong R&D capabilities fit well to the GURIT DNA. Last year, FiberLine achieved a revenue of roughly 108 million Swiss dollars. But the market for carbon-pulverized profiles is growing strongly since blade manufacturers substitute class fiber designs with carbon fiber spar caps as rotor blades become longer and their weight more critical for the turbine structures. Our aim is to triple the sales of the structural profiles business in the next years. which requires investments in additional capacities and footprint expansions to India and potentially North America. Consequently, the business currently has a startup character, is not yielding targeted profitability yet, and is demanding networking capital to support the growth. With the addition of FiberLine, Gurit's extended wind blade product portfolio is unique in the industry. GURT is now able to cover up to 50% of the Blade value chain. This offers not only cross-selling and growth opportunities, but positions us technically as a leading supplier and development partner towards our customers. This marks an important step in our transition from a pure material and tooling supplier to a solution provider for our customers. Consequently, we have continued our product innovation initiatives. The new OptiCore design platform, which is now being validated by one of our key wind customers, is one example and was acknowledged through research funding we received. We converted our site in Ringkirving, Denmark, into an R&D and technology hub for our wind plate customers and opened our new wind innovation center. You can see on the picture below a snapshot from one of the mold elements where we work together with multiple customers on new improved kitting designs. Considering our ESG performance in the first half of the year, we can claim that we are executing our sustainability strategy according to plan. Our health and safety campaign enabled us to achieve the lowest LTA ratio since the start of the program. which underlines that the health and safety of our employees is highest priority for us. Another highlight was the introduction of the one share, one vote principle and the implementation of the single register chair in May, which is further strengthening GURTS corporate governance. We anticipate that this will be reflected by improved ESG ratings going forward. That concludes the examples of first half business highlights. But before continuing with the financials, let's have a look at how GURID responds to the market challenges we currently face. As an industrial company in general and with a strong wind industrial share in particular, we are facing multiple headwinds. The first half was still impacted by COVID, leading to temporary planned closures and disruptions in China. We have no sites or critical business partners in Russia or the Ukraine and are not directly impacted by sanctions, but the indirect implications of the Ukraine war impacting us, as many other industry companies, resulting in excessive inflations of energy, raw material and freight costs. We see that our Western wind customers continue to struggle with their profitability while the Chinese market has reached 2020 levels again, but with very aggressive pricing expectations. To tackle those challenges, we have initiated multiple countermeasures. We launched our Fit for Future program, targeting reductions of indirect and SG&A costs, primarily in high-cost countries. As announced, we will consolidate our kitting footprint in Europe and relocate manufacturing from Denmark to Spain and Turkey. We further right-sized our manufacturing for Balsa and Ecuador to reflect market demands, same as for manufacturing solutions in China and Canada. We already have a strong footprint and team in China that is addressing the market needs with corresponding design to market solutions. We have now implemented a more decentralized organization to empower our team in China, aiming to increase customer proximity and further reduce time to market. Tactically, our teams focus on operational execution within all hands on deck mindset. We work to mitigate energy and raw material costs as good as possible, try to close the price-cost gaps and set up a networking capital task force. And as explained before, we continue the execution of the main initiatives of our strategy 2025. This concludes the business update, and I hand over to Philipp Wörth for an introduction of the half-year financials.

Thanks, Mikio. Let me start with the P&L and here with a quick summary on sales. Sales and materials include 27.4 million of structural profile sales. Excluding these sales, the organic growth of materials is minus 2.5% and the group is declining 17.6%. The organic decline in material of minus 2.5% and the decline in kitting of 20.9% is the result of the reduced blade demand. In materials, the decline coming from the wind business has been offset by strong growth in our marine and industrial. Manufacturing solutions declined 43.7% compared to a record half year last year. We continue to see the low levels of sales in the Western world. On a very positive note, we see an increase of sales in the first half of 2022 versus the second half of 2021. The increase is coming from China, where blade manufacturing is picking up, but at much lower prices. In total, this led to the decline of the 17.6%. When we look at the P&L, obviously profits are impacted by the reduction of sales and increase of material expenses. But there are some special items that I would like to elaborate on. Gross profit margin is 6.4% percentage points below prior year. And as a reminder, last year included a 4 million one-time balsa wood write-off. The decrease compared to prior year is mainly due to lower volume and mix, particularly manufacturing solutions. In manufacturing solutions, we lost 4.9 million Swiss franc due to lower prices in China. Higher material and freight costs accounted for a net reduction of gross profit of 3.5 million Swiss francs in the first half. EBITDA for the first half amounts to 28.1 million Swiss francs. This includes a gain of 18.3 million from our sales of the aero business and the restructuring expense of 2.3 million to right-size our organization to the current demand in the wind market. Excluding these items, our APTA is decreasing. And like on gross profit level, the reduction is due to lower volume and price as well as higher material costs. So now let's look at operating profit excluding these one timers. Adjusted operating profit excludes the gain on the error divestment, restructuring, and impairment charges and amounts to 4.6 million Swiss francs in the first half of this year compared to 26 million last year in the same period. The next slide summarizes one more time the key drivers for this reduction. Compared to prior year, we lost 14.9 million Swiss francs due to the reduced sales and due to lower manufacturing solutions in the sales mix. Then, as mentioned earlier, we have experienced a significant price drop in China in our manufacturing solution business. We lost about 4.9 million on sales and profit due to this. Next, we have a 3.5 million Swiss franc negative impact on operating profit due to raw material price increases. With a time lag, we expect to be able to pass most of it towards our customers, either through contractual obligations or renegotiations. And as Mitya elaborated before, our new India production facility started producing a couple of weeks ago. Here we are incurring ramp up costs this year while Mexico is improving compared to last year. In 2022, the impact of these ramp ups is about 5.6 million Swiss francs, and last year it was 4.7 million Swiss francs. The net effect is a reduction in profit of 0.9 million Swiss francs. After savings, of 2.8 million Swiss franc, which are mainly the result of our cost adjustment we made last year, we end up with an adjusted operating profit of 4.6 million or 2% of sales. Together, the acquisition of FiberLine and the sale of the aero business did not have a material impact on our adjusted operating profit. Okay, now let's move to cash flow. In 2022, we experienced an increase of the average trade net working capital compared to prior year. In the graph, you see an average over the last 12 months. This is caused mainly by an average longer payment terms on receivables in the wind business. This is amplified by the reduction of tooling business in China with favorable prepayment terms. We also continue to experience inefficiencies in our inventory levels. First, we need higher safety stock to overcome supply chain disruptions and long lead times. Second, we experience a much more volatile demand. Orders tend to be rescheduled or even canceled on short notice more frequently. And third, we have ramped up production in India. To counter these trends, we have put several initiatives and measures in place to bring the net working capital back to approximately 22% of sales. Capital expenditures amount to 6.7 million in the first half, 4.8 million or more than 70% of it is related to capacity increase, mostly to our footprint expansion in India. For the year 22, we expect capex below 15 million for the base business. This is significantly below prior years due to the finalized ramp up in Mexico and India. In order to ramp up the newly acquired structural profile business in India, we forecast capex of around 5 to 7 million in the second half. So in total for 2022, we expect capex in the range of up to 20 million Swiss francs. Free cash flow, which equals to net cash flow from operation after capital expenditures, amounted to minus 19.3 million. Compared to the previous year, we faced a lower APTA from operation and an adverse impact from the timing of cash receipts. To conclude on the financial, a couple of comments on the June balance sheet, which is more leveraged, as you know, as you know it from Goodit due to the acquisition of FiberLine. So net debt increased 65.9 million Swiss franc. And this is a result of our acquisition and divestment that add net 40.8 million Swiss francs and due to our cash flow performance. The equity ratio is 34% and it is reduced to higher debt as described before, but also due to our accounting policy that nets goodwill from the new acquisition against our equity. Our return on net asset increased from December due to the gain on sale of the aero business. And with this, I hand back to Mithio.

Thank you, Philipp. And I'm going to continue with an outlook on the wind market. Driven by most recently announced commitments towards the growth of renewable energies and certainly impacted by an increasing mindset change as a result of the dependency on fossil-based energy from Russia, we remain convinced that the long-term growth perspective of wind energy is intact. Evaluating the mid-term wind market outlook and referencing to the Q2 market outlook from Wood and McKenzie, there are a few observations I would like to highlight. China will drive the global installation growth. We anticipate already 60 gigawatt levels this year, growing gradually over the next few years. that underlines the relevance of the biggest wind energy market of the world and emphasizes the importance of China for Gurut and other global players. According to Woodmac, new turbine installations in the Western markets are stagnating over the next two to three years. We think that the PTC extension, which was recently announced, will lead to a rebound of the North American installations. providing an upside to the numbers shown latest in 24. The growth rate for Europe seems reasonable, with an upside potential in 24 depending on country-specific energy mix decisions as a result of the war in Ukraine. So overall, a positive midterm outlook with near-term uncertainties driven by inflation effects in Europe and America. Let me conclude today's presentation. Our focus remains on operational execution to tackle inflation headwinds. I have explained to you the measures we have implemented. The Western wind market environment continues to be volatile near-term, but mid and long-term outlook expected to be strong, driven by most recent commitments towards renewable energy. Marine and industrial continues the strong growth trajectory, and the implementation of GURIT's strategy 2025 is on track, referencing the examples I've shown to you at the beginning of the presentation. As full-year outlook, we guide the net sales of 500 to 530 million Swiss with an adjusted operating profit margin between 2% and 4%. As I've just explained in detail, we are convinced that the longer-term market outlook for wind energy remains intact. With our extended product portfolio, our manufacturing footprint, and the execution of our strategy, GURT is well positioned to benefit from the anticipated market growth. This ends our presentation. Thank you for joining us today. With this, I'm handing over to the operator for the Q&A session. Thank you so much.