Gurit Holding AG

Thank you very much and good morning. I welcome you to the presentation of our first half 2023 results. I'm here in GURT's corporate office in Zurich together with my colleague Philipp Wirt, our CFO. You have seen that we announced a change in the board of directors this morning, so I'm happy to have both Rudolf Hardon and Philipp Royer here with us in the room as well, providing additional background and be ready to answer questions during the Q&A session. Let's start and I have a look at today's agenda first. I will start the presentation by providing you a business update, highlighting the key activities and achievements of the first half of this year, and comment on the most recent events. Philip Wirt will provide details on the financials before I will spend a bit more time explaining our view on the markets and our full year outlook. Following the presentation, we have scheduled the Q&A session. So let's start with a review of the first half of this year. And I think I can say that this was overall a successful first half for GURIT. Our legacy businesses, so excluding the structural profiles business, were performing much better than last year. Our Western wind customers started to order blade molds again, driving sales and profitability of our manufacturing solutions business. Our new PET extrusion sites in India and Mexico increased their operational performance after a period of ramping up. The marine and industrial business saw continued strong demands, in particular for our recycled PET foams, as well as our high-performing core cell products. And the multitude of cost-out and profitability improvement measures, which we initiated last year, started showing the expected results. Strategically, we are progressing with the implementation of our long-term strategy, executing in different work streams according to our plans. I will highlight a few examples later, but let's have a deeper look at the first half of 2023 first. Overall, GURID achieved a revenue of about 245 million Swiss francs in the first half of the year. We increased our adjusted operating profit margin to 5.6%, coming from 2% in 2022. Excluding the newly acquired structural profiles business, the adjusted operating profit came in slightly above 10%, which again underlines the good performance of those businesses. Still, the structural profiles business yielded a significant loss in the first half of this year, I will comment later on our plans and activities to turn this business around. Another positive element I want to highlight is our cash and liquidity situation. We improved our free cash flow performance quite significantly versus last year, driven by higher profit and the stringently applied network and capital management. That helped us to significantly reduce net debt and to leverage our balance sheet. Philip will comment in detail about the financial performance in his part of the presentation. A few more first half highlights related to our activities in the wind business. I mentioned already, we see Western wind customers order blade molds again after one and a half years with almost a standstill in new projects. This has two different elements. One, it helps our manufacturing solutions business to drive sales and profitability. The other, that this is a positive signal and an early indicator that Western wind customers start investing again in new blade generations and incremental capacity after a period of stagnation. We see the trend of PET as dominating core material in wind blades to continue and are happy with the fact that we are able to increase our PET market share, leveraging our new PET extrusion sites in Mexico and India. And focusing on India, our new site in Chennai is now fully up to speed. We are running PET and kitting on maximum capacity and successfully manufactured the first mold for one of our Indian customers fully locally. We keep our strong position as core material supplier in China and our partner of choice to support Chinese customers on the expansion projects outside of China. At the beginning of the year, we concluded the restructuring of our European kitting footprint by fully relocating the Danish kitting operation to Spain and Turkey. The structural profits business is still loss making and was impacted by operational issues in Denmark and the delayed ramp up of our lead customer in India. This led to a substantial negative profit impact in the first half of the year. We are convinced that the strategic rationale of the acquisition remains intact, but a different approach is needed to turn the business towards profitability. So we concluded with the minority shareholder that GURID will take over full control of the business with immediate effect. Consequently, we reached an agreement to acquire the remaining 40% of the company. The joint venture will be dissolved and the company fully integrated into GURID. With the full integration of the structural profits business, we will be able to accelerate the turnaround of the business. Further cost optimizations in all operational areas are needed. We will fully utilize the synergies of the GURID group by bundling procurement activities and leveraging the GURID footprint and customer access. In China, for example, we see first positive results in the business development of high-performing root connection parts for local blade manufacturers. We teamed up with Owens Corning to develop and sell high-modulus glass-pultruded profiles to wind customers, offering a cost-competitive alternative to carbon fiber and utilizing the strong R&D capabilities of the structural profiles team. Further extensions of GURIT's product portfolio for wind blades can be expected, since we are in advanced engineering discussions with customers about modular and more integrated product solutions. where we will build on the full set of competencies our combined teams can offer. I highlighted at the beginning, we are very happy with the development of our marine and industrial business. The marine business saw another year and year growth driven by continued strong market environment for production and pleasure boats as well as sailing yachts. Our teams did an excellent job in executing strongly and were able to mitigate inflation impacts through solid price management. Due to our strong regional presence and our diverse product portfolio, we booked new business with new customers in Europe and North America. In the industrial markets, we see growing demand for recycled PET as an alternative fully sustainable material for applications, especially in the construction and transportation segment. Concluding, the marine and industrial business continues to deliver and GURID will strengthen our market position and global reach. I emphasized in my introduction that we are on track with the execution of our strategy. Highlighting our ESG performance, we progressed well with the implementation of our sustainability strategy. We are operating multiple ESG-related work streams, and it's encouraging to see that the dedicated work of our teams has been recognized with continuously improving rating results. We received the silver rating from Eguavadis. We have just been awarded with an A rating by MSCI, and most recently, our in-rate governance rating improved by another 7%. In addition to that, we are actively participating in industry-wide initiatives, focusing on recyclability and increased bio-content of new products and solutions. With this, I conclude the business update and hand over to Philipp Wörth for the half-year financials.

Thank you, Mitja. Let me start with the P&L and here with a quick summary on sales. Sales in materials include 47.5 million from structural profiles in the first half of 2023 and 27.4 million Swiss Franc in the same period in 2022. Excluding these sales, materials grew 6.1% at constant exchange rate. The growth is mainly coming from wind materials in Europe and Americas and from solid results in marine and other industrial markets. Structural profiles ended below expectation in the first half of 2023 due to delayed orders in India. Kitting grew 10.4%. Like in materials, this growth came from Europe and Americas. Manufacturing solutions increased 5.1% compared to the first half of last year, with a mixed shift to more molds for our Western customers. In total, this led to an increase in sales of our continued operations of 17.6%. And if we exclude structural profiles and error in both years, Gurit grew 8.6% in the first half of 2023 at constant exchange rates. When we look further down to P&L, Operating results benefit from the Western wind market with increased demand for our core material and the pickup of orders for molds. Gross profit margin is 3.9 percentage points or 10.9 million Swiss francs above prior year. The increase is mainly coming from an improved product mix in tooling with more Western sales, which accounts for an increase of 7.9 million Swiss francs. Lower material and freight costs, including sales price changes, adds 4.6 million Swiss franc profit compared to last year. This means, and we talked about this in the past, how important this is for Gurit. Our profit is increasing because Western blade manufacturers have bought molds again. And with a lot of effort in our sourcing strategy, This trend of increasing material and freight costs combined with a time lag until we can adjust sales prices has now started to reverse. These positive impacts, however, are partially offset by a reduction of structural profitability. EBITDA, for the first half, amounts to 20.3 million Swiss francs including restructuring expense of 0.6 million mainly related to structural profiles. This compares to 28.1 million last year which included a gain of 18.3 million Swiss francs from our sale of the aero business. Excluding this gain on sale, ABTA improved more than 10 million Swiss francs. Adjusted operating profit excludes the gain on aero in 2022 restructuring and impairment charges. It amounts to 13.6 million Swiss franc in the first half of this year compared to 4.6 million last year in the same period. The next slide summarizes the key drivers for this increase again. So last year we had an adjusted operating profit of 4.6 million Swiss franc. Compared to prior year, we gained 7.9 million Swiss francs due to a favorable product mix, mainly of our manufacturing solution business. In addition, we benefited 4.6 million from lower material prices. Big emphasis has been put on our sourcing strategy over the last year. Savings from restructuring, mainly our footprint adjustment in Kitting Europe, plus other smaller items added 3 million to the adjusted operating profit. On the negative side, we incurred a decreased profit of 6.5 million Swiss francs due to the acquisition of structure profiles last year. The actions that we are taking there have been discussed by Mithio. Okay, now let's move to cash flow. For those of you that follow us regularly may remember how in the last two earning calls I was talking, I was talking about the challenges we had with networking capital caused by longer payment terms in the wind business and the inefficiencies in our inventory levels due to long lead times. Much more volatile demand and the ramp up of the production in India. To counter these trends, we have put several initiatives and measures in place with the target to bring the networking capital back to approximately 22% of sales. As you can see on the left chart, this work is bearing fruit and we were able to reduce net working capital below the targeted level on average over the last 12 months. Capital expenditures amounted to 5.5 million Swiss francs in the first half. 4.4 million or approximately 80% of it is related to capacity increases mostly to our footprint expansion in India. The full year 23, we expect capex between 10 and 15 million Swiss francs. Free cash flow, which equals to net cash flow from operation of the capital expenditures, amounted to 6.5 million Swiss francs. Compared to the previous year, we benefited from higher EBITDA, excluding the gain on error, and improved working capital. To conclude on the financials, a couple of comments on the June balance sheet. Net debt decreased by 6 million Swiss franc to 78 million since December and 26.2 million since last year, June. The equity ratio is 33.8%, and this is a slightly better number than in December 2022. We experienced a 7.4 million currency loss on equity, which more than offsets the earnings. The gross debt to EBITDA ratio remains stable at 2.8 times with underlying two opposing effects. On the positive side, we were able to reduce gross debt by 21.1 million since December 22. On the other side, the gain of the sale of the aero business from last year is not anymore included in EBITDA. We expect this number to further reduce by the end of the year. The acquisition of the remaining 40% of Fiberland will only have a small impact on debt as the majority of the cash flow or the cash outflow goes out over an extended turnout period. Our return on net assets is positive again, coming from our significantly improved legacy business. So financial summary. Strong first half in the legacy business with margins back to normal levels. Free cash flow generation helps to deleverage by lowering the debt. Unfortunately, the structure profile business did not develop as initially expected. This modifies a little bit the overall picture, but as you have heard from Mitya, we are addressing this issue. And with this, I hand back to Mitya.

Thank you, Philipp. I will share our view on the wind market outlook and reference to the latest market outlook data we use from Brinkmann here. Short-term uncertainties in the wind industry will remain, with customers announcing negative impacts related to quality issues. As you know, We are not talking about our customers in public, but I want to highlight that GURID is not directly involved in those quality issues recently announced by two of our customers. But naturally, we will be impacted indirectly when customers delay projects or postpone new product introductions. We anticipate further plate stock depletion since customers still sit on sizable inventories, which is impacting short-term demand. The recently announced offshore project cancellations in the UK and the US are a worrying signal that there is a need for more flexible auction designs and pricing schemes to enable the long-term feasibility of wind projects. Looking at the regions and beginning with Europe and North America, 2023 and 2024 are expected to be on similar activity levels. before positive impacts resulting from the Inflation Reduction Act in the US and offshore growth will lead to higher installation numbers from 2025 onwards. New plate models for larger wind turbines will drive mold demand, but also regional proximity needs, since geopolitical considerations becoming more important. In China, we have seen a solid market so far this year, but anticipate lower installation numbers for the full year on the level of 50 to 60 gigawatts instead of the 70 plus gigawatts shown on the chart. Market remains highly competitive with plenty of underutilized capacity. GURID sees growth potentials with Chinese customers winning projects outside of China. One of our customers has been awarded the largest order pipeline for onshore turbines in India and the Middle East, and Gurit strategically supplies and services those projects from our sites in China and India. Considering relatively low order intakes in the last 12 months, but a stable ASP development of our Western customers, we expect that our customers will focus on recovery and earnings improvement in the next 12 to 18 months. Mid-term growth projections are above 6% per year, so the industry will need to scale and set up the investments needed to produce the expected gigawatt levels of new wind turbines. Let me conclude today's presentation. We had a successful first half of the year 2023. H1 sales was within the expected range, highlighted by a positive product mix in wind with more western mold projects and a strong marine industrial business. This and the cost out measures launched improved our profitability and cash flow performance. We acquired the remaining 40% shares in FiberLine composites to accelerate the turnaround of the business. Strategy execution remains on track with a steadily improved ESG performance. For the full year outlook, we narrow our net sales guidance to 460 to 490 million Swiss and we increase our operating profit margin outlook to 3 to 6%. Before we now start with the Q&A, we would like to provide a bit more background on the organizational changes in the GURID Board of Directors, which we communicated this morning. For that, I hand over to Rudolf Hardon and Philippe Royer.

Thank you very much, Mityam, and welcome everybody also from my and Philippe Royer's side. We are here, both of us, today to explain and announce the organizational change in the Board of Directors. I've personally served Kurit for 16 years almost now. The disappointing results of the past two years required a resolute and, as we can see, successful action as of 2022. Also, the wind market lights up since the beginning of 2023 again. That's good. The financial results come back strongly now in 2023 for the core business. And the newly acquired FiberLine business needs full focus and control to deliver the results we all need. In order to fully integrate and now dynamically develop this business, we completed the buyout of the residual 40% of the FiberLine shares actually yesterday. Also, as Philipp Wirt elaborated, our indebtedness on a cross-net basis is markedly reduced. And overall, we can say that GURIT is again on safer grounds. Now, personally, as all of you know, or some of you know, I have various private businesses I pursue, and they need my full attention and passion going forward. This is why I've decided to step down now at this moment as a chairman of GURIT and Philippe Royer, a member of the board of GURIT since 2019, and the former CEO will succeed me in this role up to the next annual general meeting. I thank you for your understanding and I will ask Philipp to introduce.

Thanks, Rudolf, and good morning, everybody. Well, first, many thanks to Rudolf Hardon for his leadership in the last 16 years. I'm also gratefully accepted in the last couple of months to postpone a bit his personal projects in order to finalize the acquisition of the 40% remaining shares of FiberLine, together with Mitya Schultz. For me, Gurit is not new, as I dedicated a significant part of my time in the last four years as a board member to understand the company and its markets. In the last 10, 12 years before that, I was CEO of comparable companies. I mean, industrial B2B companies, comparable in size, sometimes comparable in production processes. For example, I know extrusion quite well, even if I was extruding more aluminum than PET. Comparable for some markets, in terms of customer structures with some heavy players, and certainly comparable in terms of geography. So I've been running or acquiring locations in Europe, obviously, but also in North America, including Mexico, many plants in China, Southeast Asia, and also in India, and even in Tamil Nadu, close to Chennai, where we as Gurit have successfully started a large, multiple business operation. Well, what is maybe new to me is that I was not used to such a unique, huge market potential opportunity, together with having some players in the supply chain making heavy losses. But I think I'm not the only one to be surprised by that. So I'm optimistic for GORID. Cautiously optimistic for wind business. You have seen in the first half results and you have heard from Michael Schultz earlier today that we have some positive signs. And I'm also optimistic for marine and industrial business as the team has done a super job in the last couple of years to identify market opportunities. And there are many. So with this, I think I hand over back to you, Mitya. Thank you, Rudolf.

Thank you, Philipp. This ends our presentation. Thank you very much for joining us today. And with this, I'm now handing over to the operator for the Q&A session.

Our first question comes from the line of Laura Bucher with Octavian. Please go ahead.

Hi, good morning. Thank you for taking my question. First of all, congratulations on the on the good results. A couple of questions from my side. First, how fast can we expect to see the demand for molds translate into sales of wind component materials? Second, can you walk us through the operational issues and the new different approach regarding the fiber line acquisition, and how quickly do you expect these issues to be solved? And final question, some OEMs are indicating more movement, especially now in H2. in the US after the announcement of the IRA credits. You said volume should come in 2025. Can you give us an idea of what kind of conversations, if any, you're having on that topic?

Sure. Laura, let me start with the third question related to the IIA impact. So we are obviously in discussion with all our major customers who are active in the US or North America, and we see some of them, and they announced that as well, being more bullish and also investing in incremental plate manufacturing lines. You've probably seen some of those announcements yourself. These are all customers of us and with our established footprint in Mexico, we will be able to participate from that. When you look at the timing, this was your question, we see that they now gradually launch investments in extending production facilities or bringing idle production facilities back to life. This will take a little bit of time. We have the first new mold orders there as well. And so we anticipate that really in terms of plate numbers slash then turbine numbers, we will rather see sizable impacts of that in the earliest in the second half of next year. And this is also why I'm saying, and I think this is a consensus with others as well, that really measurable impact you'll rather see in the year 25 than much earlier before. That also answers a little bit your first question. You asked how long does it take to translate a mold order into material order? First of all, that depends a little bit on the customer. It depends a little bit on where the mold actually lands, because there's certainly some transportation time if you bring a mole across the ocean. But usually, usually we would say some time between six and 12 months. It rather takes and probably more 12 months. until we really see that a customer is then installing the mold, making the first plate, and then being ready to scale production. And your last or second question in this case was related to the fiber and turnaround and what are we doing differently and what's the timing behind? So first of all, and I mentioned that in my presentation, I think there are further opportunities we can use by fully leveraging the capabilities the joint company has. in fields of procurement, in the fields of sales, in the fields of joint product development. That's one. And there are some impacts which we will see already next year. And there are some other impacts which will probably take a little bit longer time until business developed turns into profit and sales streams. Operationally, as I also indicated, and as you have also seen in the financial presentation, we did sizable restructuring of the Danish operation. We are in discussion with the team to discuss measures, how to further optimize the operational performance, the product performance, the quality performance, increase output of those products. A multitude of measures is being lined up here, and we are confident that we will see gradual improvements. probably starting later this year already, but certainly helping us to improve performance already next year. So this is the timing we have basically behind these activities.

Just a very quick follow-up question here. Regarding FiberLine, I think in the last conference call, it was mentioned that there was some delay with the technical, or was it acceptance of technical penetration. Can you give us any update on that?

Absolutely, and obviously I forgot to mention that. One of the major reasons why we are not materializing the sales in India yet was, as you just said, and as I also explained, that one of our lead customers delayed a project We have now started in supplying. We are basically now, as we speak, in the ramp-up phase of this particular customer project. It will take us probably the next three, four months until we fully conclude on that ramp-up and then supply those products being ramped up starting end of this year. And then obviously the next year out of our Indian facility to this particular lead customer.

Okay. Thank you very much for your, for the time.

Thank you.

The next question comes from the line of Thomas Alberto with Credit Suisse. Please go ahead.

Yes, good morning. Thanks, everybody, for the presentation. So, firstly, on profitability, I mean, EBIT margin has improved quite significantly, but net profit, it seems, is suffering from higher interest and taxes. So could you comment maybe on that also in terms of what we can expect here for the full year? And then on FiberLine, a quick follow-up to Laura's questions. Could you maybe indicate by when you expect FiberLine to be break-even? And then thirdly, on the market outlook, You mentioned inventory levels continue to be relatively elevated. By when do you kind of see these inventory levels to be fully drawn down? That would be helpful. Thanks.

Sure. Philipp, you start probably with the question. I will go all the way.

I will go all through up to Fiberland. So the first one, the net profitability, yes, is... tempered a little bit by higher interest rates compared to prior year. You all know that the interest rates are increasing. We also see currency losses on the financial results. The Swiss franc is strengthening against all the currencies, particularly areas like China or also Turkey are devaluating quite significantly on their currencies. And that's a major reason there. And then you also notice a continuing high tax rate of more than 40% for the first half year. This is due to loss-making businesses where we do not capitalize the deferred tax assets arising from the loss carry-forwards. We do that when we don't see in the mid-term the benefits coming back from higher taxable income. On the networking capital or the inventory question, I mean, our inventory levels, they are much better, right? We, our inventory turns are improving. So the increased levels would come from higher sales and not from lower turns. However, on the particular on the structure profile business. And when you look, when you hear the story that, you know, orders are delayed in India, of course, there is now some inventory sitting around, which, we will be able to dispose by the end of this year once these orders come in. So also there we expect then some benefits on the inventory level.

Okay, Philip, thank you.

Just to follow up, if I may, on the inventory level. I actually meant more the inventory levels of your customers in terms of plates.

Oh, okay. Understood. So let me just lead you through that, our perspective of that. And I mentioned it also at the beginning of this year, right? We had some customers, it's a little customer specific, and some of our customers are really eating through sizable inventories. I mentioned it at the beginning of the year that we see with some of those customers, even year-on-year reductions in blade manufacturing demand due to that. And this is materializing as we speak and also reflected partially in our numbers. And I would personally anticipate that for those particular customers, we will see that impact in the full next year as well. Because we are really talking sizable inventory numbers here. And when you listen to some of those customers' presentations, you could also hear that. Related to your question about fiber line and break even timing, two comments here. One is there are things which we are controlling ourselves. I said that we have a multitude of cost out measures planned, initiated and in the pipeline. We are confident that we are executing those and we will confident that those will lead and help us to reach break evenish territories next year. There is one uncertainty and I also want to mention that and I mentioned that before. There is a market uncertainty as I said and obviously performance has also something to do with top line and we know that some customers are still not fully clear about the total amount of blades to be produced next year. So this uncertainty is still a little bit out there. I guess we will get much better visibility until the end of this year and early next year. So when we will talk about 24 and guidance 24, I think we will also have a much better view on timing for break even at the fiber line of the fiber line business.

Understood. Thanks a lot.

The next question comes from the line of Daniel Koenig with Mirvabo Securities. Please go ahead.

Yes, good morning. I have two questions. First, on the consultant on 24, is that, in your view, a conservative estimate? I was just wondering if the mold business is picking up in the West, isn't that a sign that maybe 24 is going to be better than in 23. So what is your assessment of this Brinkman consultant outlook for 24? Is that a conservative or a realistic outlook? And then I was wondering on your guidance, on your EBIT margin guidance of 3% to 6%, you're now currently at the upper end of that range besides Currency effects, what are negative factors which would bring it down? Or can you elaborate on your forecast? Because it looks, if the business is picking up and you're already at the upper end, it's maybe a conservative forecast. Thanks. That's it.

Daniel, thank you for your question. Let's start probably with the second question first. It might be a conservative view. We've also seen quite a bit in this industry over the last 24 months, I would almost argue. When you look, and this is why I mentioned in particular that we see near-term uncertainties in the business, what is impacting and what can happen is, of course, that certain projects which we talk about with customers, slip further to the right from a timing perspective. And I mean, customers have announced, and you read that, about specific delays of projects, but that is impacting and could further impact the business and consequently probably two, three mold projects, for example, moving to the right or other things which would then have a negative second half year impact. I think that's clearly one element which is driving probably a cautious view of us on the second half of the year. To your first question related, how realistic is the outlook of Brinkman? You know, that's almost a philosophical question. I would argue when you compare outlooks from Brinkman or Woodmax over the last years and how good they have been at the end of the day. From today's perspective, I think anticipating overall that the western wind markets will be more or less on similar levels next year i think is a solid is a solid estimation there are some upsides potentially if things in particular north america will go a little bit faster And there are probably even some downsizes if another customer suddenly comes up and tells the market about unprojected issues. So from today's perspective, we think that's a solid outlook, as good as you can make outlooks in the wind industry.

Sorry for the philosophical question. Thanks.

It's all good.

There are no more questions at this time. I'll hand back to Mr. Mitchell Schultz for any closing remarks.

Okay. Thank you very much. And again, I want to thank all of you for your time today and for your questions. That concludes our presentation. I wish you all fantastic remaining week and talk to you soon. Thank you very much.