Gurit Holding AG

Good morning from my side as well. I welcome you to the presentation of our financial year 2023 results. I'm here in GURIT's corporate office in Zurich together with my colleague Philipp Wirth, our CFO. Philipp Royer, GURIT's chairman of the board, is also with us today. Let's start and have a look at today's agenda. I will start the presentation by providing you a business update, highlighting the key events and achievements of last year. Philip will provide details on the financials before I 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 continue with the highlights of last year. We ended the year with a revenue of 460 million Swiss, which represents an adjusted growth of 2.7%. We improved our adjusted operating profit margin to 4.5%, coming from 2.3% in 2022. Our diligent focus on networking capital drove our free cash flow to 27.2 million, which is another significant improvement compared to the year before. Consequently, we were able to substantially reduce our net debt to below 60 million, significantly deleveraging our balance sheet. I want to thank the more than 2,500 Gurit employees worldwide for their daily efforts, their strong commitments towards our company, and their desire to support our customers globally. Let's have a closer look at last year's business activities. Wind customers have been cautiously investing again and winning new orders for future projects, both onshore and offshore. Western OEMs have taken actions to improve their financial performance with several returning to profitability during the year. We saw a slight recovery in the Western world and higher activities in China. The Chinese market established overcapacities for wind turbines and in the supply chain. Consequently, we adopted our strategy to be more selective on Chinese projects, prioritizing profitability before volume. We see the trend of PET as dominating core material in windblades to continue and are happy with the fact that we are able to increase our PET market share, leveraging our global PET extrusion and cork hitting footprint. As announced, we successfully concluded on multi-year agreements with key customers, guaranteeing us a major share of their supply in the coming three to four years. This is highly relevant considering the recent positive news of major wind customers planning to increase their production output in the coming years based on strong order intakes reported. Our new sites in India and Mexico are fully operational. We successfully achieved a profitable year one in Chennai, a strong effort by the local team. The plant in Mexico improved operationally and shows a strong order outlook for the year. The structural profiles business, now fully integrated in GURIT's organization, is still loss making and was impacted by lower offshore business in Denmark and the delayed ramp up of our lead customer in India. For 2024, the focus is to turn around the business. This will include further structural cost reductions and the full utilization of the synergies of the Gurut Group, for example by bundling procurement activities. Our marine and industrial business had another good year and continued with profitable growth. We were able to win the first significant orders with major European boat builders. We also successfully won business for recycled PET panels for multiple industrial applications in the US. Recycled PET foam is both gaining shares in existing markets while growing in new applications in recognition as a superior material option driven by energy efficiency considerations of customers. We see the field of energy efficient composites, as we call it, as a new growth potential for GURID, and I will elaborate more on it in the later part of the presentation. Concluding the business update, I will now move to our sustainability performance from last year. Highlighting our ESG performance, we progressed well with the implementation of our sustainability strategy. We are operating multiple ESG-related work streams across the company and progress according to our goals and expectations. It is encouraging to see that the dedicated work of our teams has been recognized with continuously improving rating results. We received a gold rating from Ecovades and we have been awarded with an A rating by MSCI. For the first time, we awarded internal projects with the GURID Sustainability Award, recognizing the successful work of our teams to reduce energy consumption, improve waste reductions, and to increase our social engagement in the communities GURID plans are located. To summarize, we are on track with the execution of our ESG strategy. Lastly, I want to use the opportunity to highlight changes in our executive management team. I'm welcoming Karen Glauser as new Head of Group HR. Karen joined GURID in February in the succeeding Hannes Hauheis, who left GURID end of last year. And as announced two weeks ago, Javier Perez will join GURID on May 1st as new CFO, and Philipp Wirth will leave GURID end of this month. We thank Philipp Wirth and Hannes Hauheis for their support and strong commitment during their time with GURID. Philipp, it was a pleasure having you as a wingman on my side and I wish you all the best in your new role. With this, I conclude the business update and for the last time, hand over to Philipp Wörth and the full year financials.

Thanks, Mitya. Let me start with the P&L and here with a summary on sales. In wind materials, which includes composite material, kitting and structural profiles, grew 1.9% year on year against a very difficult comparison in the second half, as you can see in the bar chart to the left. The decrease in the second half of 44 million includes 16 million Swiss francs of negative currency and 19 million of lower sales to India in structural profiles. where in 2022 we included a one-time order to build up safety stocks at one of our customers. The remaining decrease in wind materials in the second half is mainly due to China, where the competitive environment had either an impact on pricing or we selectively opted out on orders. In manufacturing solutions, sales was more or less in line with the previous year. but with a more than 30 million shift of sales from Chinese to Western customers. Marine and industrial continued with solid sales growth of 7.1% at constant exchange rate. Overall for the group, this results in a 2.7% growth for the continued business at constant exchange rate, with an approximately 35 million CHF shift of sales from Chinese to Western customers. When we look further down the 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 3.4 percentage points or 10.5 million CHF above prior year. The increase is mainly coming from an improved product mix in manufacturing solutions with more Western sales, which accounts for an increase of 8.2 million Swiss francs. Lower raw material and freight costs, including sales price changes at 6.9 million profit compared to last year. So overall, our profit is increasing because Western blade manufacturers have bought molds again. And with a lot of effort in our sourcing strategy, the trend of increasing material and freight costs combined with a time lag until we can adjust sales prices has reversed. These positive impacts, however, are partly offset by a reduction of structural profile profitability. EBITDA for the year amounts to 34.6 million Swiss francs, including restructuring expenses of 0.9 million. mainly related to structure profiles. This compares to 39.8 million Swiss franc last year, which included a gain of 18.3 million Swiss francs from our sale of the aero business. Excluding this gain on sale, APTA improved 13 million Swiss franc. Adjusted operating profit excludes the gain of the aero divestment in 2022, restructuring and impairment charges. It amounts to 20.6 million Swiss franc in 2023 compared to 11.2 million last year. The next slide summarizes the key drivers for this reduction. So last year, we had an adjusted operating profit of 11.2 million Swiss franc. Compared to prior year, we gained 8.2 million Swiss franc due to a favorable product mix, mainly of our manufacturing solution business. In addition, we benefited 6.9 million from higher sales and lower raw material prices after big emphasis has been put on our sourcing strategy in the last year. On the negative side, we incurred a decreased profit of 5.9 million Swiss francs due to the acquisition of Struxure Profiles last year. We are in the process to restructure the cost basis of this business and expect this number will change its sign as the business becomes breakeven in 2024. Okay, now let's move to cash flow. For those of you that follow us regularly may remember how in 2022, I was talking about the challenges we had with networking capital caused by, on average, longer payment terms requested by our customers in the wind business, and inefficiencies in our inventory levels due to supply chain disruptions with 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 net working 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. In the second half of 2023, we were even able to reduce this further compared to June 2023. As a result, we were able to release on average 23 million trade net working capital into cash. Capital expenditures amounted to 11.3 million in the year. 7.7 million, or approximately 70% of it, is related to capacity increase, mostly to our footprint expansion in India. For 2024, we expect capex again between 10 and 15 million Swiss francs. Free cash flow, which equals to net cash from operation after capital expenditures, amounted to 27.2 million. Compared to the previous year, we benefited from higher EBITDA, excluding the gain on ERO, improved working capital management, and lower CapEx. So to conclude on the financials, a couple comments on the December balance sheet. Net debt decreased by 24.1 million Swiss franc to 59.9 million since December, which is the result of the before discussed free cash flow. The equity ratio is 28.3%. This is slightly below December 22. Equity has been reduced by additional goodwill from the buyout of the remaining 40% Fiberland shares, and we continued to experience strong currency headwinds, which lowered our equity. The gross debt to APTA ratio reduced to 2.1 times, with underlying two opposing effects. On the one side, we were able to reduce borrowings by 38.8 million since December 2022. This reduction in borrowings is an even more impressive 63.9 million if you look back to June 2022, where we started with a rigorous working capital program and implementing state-of-the-art cash management processes across the globe. On the other side, the gain of the sale of the aero business from last year of 18.3 million is not anymore included in the EBITDA. So we expect this ratio to further reduce by the end of 2024 towards 1.5 times. Our return on net assets is positive again, coming from a significant improved legacy business. So financial summary. Modest sales growth in the year with a legacy business whose margins are back to normal levels. A rigorous networking capital program helped to improve free cash flow significantly. Together with improved cash management processes, we were able to lower borrowing substantially. Unfortunately, the structure profile business did not develop as initially expected. This mod is the overall very positive picture, but we are addressing the issue. With this, I hand back to Mitya.

Thank you, Philipp. And I will continue with a closer look at our markets, obviously followed by an outlook of how we see 2024. We at GURID are thrilled by the commitments from global governments during the UN Climate Change Conference, aiming to triple global renewable power capacity by 2030 and double the rate of energy efficiency improvements. We expect those initiatives to impact sales very significantly from 2025 as they started to translate into major turbine orders for our wind customers in recent months. Strategically, that is fully in line with our positioning in the wind energy segment. So we will continue to prepare our global manufacturing footprint for the announced growth. But it offers also new opportunities for GURID. More energy efficient applications require technologies and materials enabling customers to reduce energy or fuel consumption of their products. Those are new markets for recyclable PET materials and I will later explain more on our strategy related to energy efficient composites. But first I will share our take on the wind market outlook and referencing to the latest market outlook from Brinkman. First of all, we expect Western wind markets to grow substantially from 2025 onwards. This is also substantiated by the most recent announcement from Western wind customers considering order intakes and project timings of new major wind park projects announced. For 2024, we expect some growth in China, while demand for rotor blades of Western customers will slightly decline versus 2023, primarily driven by customers still consuming sizable blade inventories. We have seen that most Western turbine OEMs progress well on their financial improvement plans and are positive about the outlook of the next three to four years. Incentive packages start to translate into growth pipelines, particularly for onshore or both in Europe and North America. So looking at the upper chart, which shows the expected amount of new turbine installations for the world without China and for China below in gray, we expect both markets to grow from 2025 onwards. Offshore growth still sees some delays linked to high financing costs and uncertain permitting in the U.S., China is expected to experience growth primarily for offshore, while onshore remains stable at 60 to 65 gigawatts. Midterm growth is projected at a double-digit CAGR, so the industry will need to scale and set up the investments needed to produce the expected gigawatts of new wind turbines. Let's change gears and have a look at the marine and industrial market segments. In the short term, we see medium to large marine projects to maintain their market position, while the market for smaller marine projects is expected to soften slightly. Mid-term, the market is expected to growth on mid-single-digit CAGR levels. In the industrial segments, we are confident that growth will accelerate, driven by the increasing demand for recycled PET foam. As I elaborated already, we see what we call energy efficient applications business as an additional future strategic growth driver for our company. And our expectations are to double PT sales outside Marine in the next few years. To execute those strategic plans, we strengthened our footprint in the US and acquired FX Composites in Dallas, Texas. FX today supplies core material kits for Gurit's marine and industrial business. So we basically insource that operation. It will provide us a more visible hub for our non-wind activities in the US. And while we see the US as most promising market for those energy efficient composites, we are convinced that with establishing a dedicated Gurit footprint, we will underline our commitment as regional player. The acquisition provides the first milestone in our approach to conquer the US market for energy efficient composites. Before I'm coming to the conclusion and the outlook, I want to provide more color on our expectations for 2024. You can see in this chart that we expect volume growth with Western customers of about 5% in a market environment that is flat at best in terms of blade production volumes. This growth is the result of GURID winning market share across the Western wind portfolio. As said already, we managed to secure sizable multi-year contracts and strengthened our market leading position. We deliberately choose to be more selective with business in China, prioritizing profit before volume. Additionally, we see reduced input material costs, for example for carbon fiber, which we pass through one-to-one to customers. Both impacts will offset the volume growth. Looking at marine and industrial, new business wins for energy-efficient composites and market share gains in marine help us to offset the softening of some of the marine market segments. In summary, we grow both in volumes and market share in a flat market environment, but this growth will be offset by material price reductions and less China business. That brings me to the conclusion of today's presentation. Overall, we navigated well through 23. We saw moderate growth in a non-growing wind market environment impacted by a strong Swiss franc. We improved operating profit and cash flow performance and leveraged our balance sheet. This is important to prepare the company for strategic growth ahead. We gained market share and secured its future with strong long-term agreements. Our marine industrial business remains on a strong and profitable growth trajectory. We adjusted our strategy and will stronger emphasize the wider addressable markets for energy efficient composites. We will keep the focus on cash management and operational execution and continue delivering improved financial results. For the full-year outlook, we expect a back-end loaded 2024 with net sales between 435 and 485 million Swiss and an adjusted operating profit margin of 5% to 8%. Beyond 2024, we expect an accelerated growth momentum driven by increasing demand of West and Wind customers and additional impulse from our energy-efficient market penetrations. I will hand over to Philippe Royer for some closing comments.

Yes, thank you, Micha. I guess the main questions are first, is growth coming in the wind industry? And then is Guret going to benefit from this growth? So I wanted to stress a few points. And I'm not going to talk about Brussels goals or Washington DC goals, but just what we see at our customers and internally. So as partly said by Mika, first, major Western OEMs have increased their order intake in the last months, in the last three, four months. Almost all of them, to the exception of one maybe with some quality issues. All Western OEMs have increased their sales guidance. Of course, part of it is coming from increased sales price, but there is a little element of volume in it. You have also some of our customers who are already guided for 25 with extremely optimistic and better numbers than 23. And the numbers of onshore blade lines in North America and Europe is increasing. And we see our customers ramping up. So install and ramp up those lines. We also are seeing our customers ramping up new factories, for example, in India. Even some completely new offshore facilities have been announced. But this is, for example, in Poland, this is going to be a bit later a common stream in 26. But so on the market side, our customers in all kind of measures are forcing growth. So growth is coming. Now on our side at GURIT, first we are integrated kitters with a global footprint. This means, of course, we deliver the core materials like PET foam and we keep it. We are, as we speak, qualifying for all new blades onshore and offshore. This means in all our plants, Mexico, India, Europe, We are now qualifying for the new kits that are going to the newly developed blades from our customers. As Mitya said, we have negotiated LTAs with two major OEMs. And I want to stress out that those LTAs are not volume-based. They are share of wallet-based. This means when customer volumes are going up, other volumes are also going to go up with these contracts. With other customers, we have yearly contracts, which we have negotiated with full benefit of the global footprint. Today, approximately 20% of our capacity is available. With the customer forecast, we have We know that in the second half of this year, we are going to be more than 90% utilized. I'm talking about capacity. And then we can still make more capacity available by improving our customer mix. So as you can hear, GURIT is ready for the announced growth. The announced growth in the second part of 24 and certainly the growth accelerating in 25. I hand it back to you, Micha. Thank you.

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

We will now begin the question and answer session. Participants can now ask questions by pressing star and one on the touch-tone telephone. Questioners on the phone are requested to use only handsets and eventually turn off the volume from the webcast. If you wish to remove yourself from the question queue, you may press star and two. The first question is from Vigar Constantine from Bader Helvea. Please go ahead.

Good morning, ladies and gentlemen. Thank you so much for your presentation, Mitya, and all the others as well. Maybe I would start with a couple, if I may. First of all, I think you touched already on the uncertainties in the US offshore sector. However, given the recent rebates for at least two of the challenging New York offshore projects, would you say that the Western offshore markets also with regards to the UK maybe as well, really getting a bit more back into a consistent demand environment and therefore some more or some less uncertainty for the future. And then on your FX composites acquisition, if you could share some further details on any sales and if you expect any integration costs and if there's anything already or what is included in your guidance here from that acquisition as well. I guess it's a rather small acquisition, but nonetheless, maybe you can shed some light also given the fact that integration costs might be an issue or was at least for the structured profiles in the past. And maybe if I may squeeze in a third question, I've seen that Akema has successfully tested polymers for core materials that would enable blade recycling. Is that something that you expect to challenge the current PET leadership in the future? And maybe you can just elaborate a bit on what your opportunities are in that regard as well. Thank you.

Sure. Thank you, Konstantin, for your question. Let me probably start with the last one, the Arkema project. But first of all, we are ourselves engaged in multiple blade recycling activities and development projects ourselves as well. And we, of course, also closely following Zebra and the other projects which are out there with our customers. I mean, the major technical challenge obviously is twofold, right? One is to have a resin system available, which allows you to be fully dissolved and then basically enables the plate to turn back into its original components. And second major challenge, of course, to do this in an industrial process where it is, let's say, to a certain degree, commercially viable. The impact on core materials, the projects we are engaged with and what we've also seen in other projects is that after basically the recycling process is done, you will have core materials or carbon fiber or glass fiber again available in a way which would you allow to reprocess it. um with pet we are actually having one project where we are now already trying to reuse exactly this recycled pet and check if we for example can re-extrude it in our process so basically fully reintegrated in our process so long story short we are actually not concerned about the recyclability of rotor blades. We think PET is actually a very good product which can also, after the blade recycling, be reused and be put again into use in the cycle. So no worries on our side. Yes, we've also seen that there were some good news. I mean, there were also a couple of not so good news when we see what Ørsted, for example, announced. But what we see is just bluntly what we see on the customer side is that customers are preparing. We've seen an announcement of a big customer to set up a new plant in Poland. But we also see that the timelines behind are more a little bit further out than we probably originally anticipated one and a half, two years back. So we think real volume growth is probably more in the very late part of the decade. And also in the US, when we talk to customers in the US, there still seem to be certain things not fully clear. Yes, some projects are now making it through the full permission pipeline. But still, again, I would say when you compare it to probably one and a half, two years ago, this outlook is a little bit further out than what we originally anticipated in terms of volumes. And related to FX. FX, as I indicated in the presentation, is a company which is today working for us already. So 100% of their sales they do today is basically for Gurit. So what we do now is an insourcing of this activity. So it will not have a top line impact on our on our numbers, we assume that the integration costs will be very, very limited. So, and those costs are considered in our outlook and our guidance. So that's from today's perspective, nothing uncovered out there, what we would see. I hope that answers your question. Perfect. Thank you so much.

There are no more questions from the phone. Gentlemen, would you like to conclude the call?

Absolutely. Thank you very much for participating in today's call and taking the time. And we are looking forward to speaking to all of you next time. Thank you so much and have a great week.