Gurit Holding AG

Good morning. I welcome you to the presentation of our half year 24 results. I'm here in GURIT's corporate office in Zurich together with my colleague Javier Perez, CFO. 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 the first half year. Javier will provide details on the financial performance 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 start with an initial look at the key financials of the first half of 24. After a slow start in the year, impacting sales of all business units, We experienced a stronger second quarter driven by ramp-ups of new wind blades and higher demands in the non-wind markets. This resulted in the first half net sales of 213.5 million francs, yielding an adjusted operating profit margin of 5.4%. We were able to decrease our net debt from 78 million Swiss in the previous year period to 63.4 million Swiss. Javier Perez will provide more details on the financial performance in his part of the presentation. So let's continue with the highlight of the first half. We start with the wind markets where we saw some encouraging developments. Strong permitting and auction improvements in the European Union and the renewed interest in onshore wind in the UK. The Inflation Reduction Act impacted the restart of numerous wind production sites in the US. China wind installations stay at good levels and, very important for GURIT, our structural profiles business is on track to deliver the targeted break-even performance this year. Still, we have seen headwinds approaching the industry and impacting our wind business. Western wind customers reduced and even stopped activities to fix quality issues and deplete inventories. Some adjusted manufacturing capacities and initiated major restructuring. Delayed rollout of new turbine platforms and extended lifespan of existing ones, which reduces the demand for wind plate tooling and molds. And overcapacities in China drive price pressure on turbines, components and materials. So short term, the wind business environment remains dynamic and volatile. Continuing with our non-wind business, the year started with low sales impacting Q1. And since then, the marine markets have stabilized and are performing as anticipated. The industrial markets continue to present numerous opportunities and our activities remained on track. I will show you some of those examples in the next slides. Lastly, we transformed our site in Magog, Canada to purely cater the marine business and successfully integrated the newly acquired FX composite business in the US. Let me show you some examples highlighting our first half year activities. In wind, strategically highly important, one of our major Western wind customer awarded us with the first mold for their newest offshore turbine blade. A very important step considering future projects to come and a great opportunity for us to demonstrate our technical capabilities. In India, our investments in a dedicated wind tooling plant start to pay off. We manufacture the first molds for two major Indian customers already and continue expanding customer reach in the second half of this year. Besides winning multiple new marine projects across the world and supporting established customers in successfully scaling their businesses, we are immensely proud of our composite engineering teams driving water sports athletes towards success. Our Auckland-based engineers closely worked with the New Zealand Olympic rowing team, which resulted in a silver medal for Olympian Emma Twigg. Great Gurut engineering work and congrats to Team New Zealand. In the business for energy efficiency applications, we successfully managed the market entry for recyclable PET panels, both in the transportation and building and construction industry segments. Our customer in the truck is using our recyclable PET in trailer floors, where they help to improve durability, isolation performance and reduce the weight of the vehicle, reducing fuel consumption. Another example is our customer Opbox, which is offering mobile homes in the US. Improved isolation performance and recyclability were key arguments for our PET panel solutions. In both examples, our customers replaced conventional materials with GURIT's recycled PET because of the superior material properties, which supported their individual energy efficiency ambitions. Both examples provide credibility of the growth potential of PET in multiple industrial applications, and we are very happy that we successfully made the first step in those segments. Some updates on our structural profiles business. I already informed that the business is on track to deliver the targeted break-even performance this year. To further increase the competitiveness of our structural profiles business unit, and that's an important step towards future profitability of the business, we have decided to relocate the manufacturing of glass and carbon fiber pull-through profiles from Middletown in Denmark to India and China. We expect the relocation to be finalized by July 2025 and to incur total impairment charges restructuring and relocation expenses in the amount of approximately 10 million francs, primarily in the second half of 2024. With this, I conclude the business update and hand over to Javier and the Half-Year Financials.

Thank you, Michael. Good morning everybody and a warm welcome also from my side. In total, we posted net sales of 213 million in the first half of 2024. At constant exchange rates, this is still a reduction of 8.8% compared to the prior year period. In Swiss francs, the reduction is even 12.8%. At 113 million, the second quarter was significantly stronger than the first quarter of 2024, with net sales of 97 million. Overall, call-offs from our wind customers were in line with our expectations. In spite of the higher sales in Q2, we have not seen a significant increase in demand from our western wind customers, even though the long-term forecasts are encouraging. We are pursuing a selective approach with Chinese customers due to local overcapacity and lower price levels. In the first half of the year, we were able to increase sales of structural profiles, formerly fiberline, after a very weak start last year with low volumes in India. As a result, still net sales of wind materials reduced in the first half of 24 by 7.6% at constant rates to 141 million. In manufacturing solutions, we have seen a delay in multiple customer projects leading to a lower number of delivered molds. With net sales of 21 million, the decline was 27% year over year. Currently, we are fully loaded and expect a recovery in the second half of the year. The higher margin marine and industrial business remains stable year over year with 51 million Swiss francs. Looking at the regional sales, sales in Europe and North America reduced, while our sales in Asia, in particular China, increased slightly year over year. Looking at the results, thanks to an improvement of our structural profiles business in the first half of 2024, our cross-profit improved by 0.7 percentage points to 17.8%. We did achieve a break-even result in structural profiles while experiencing losses in 2023. its cross-profit improved by 10.8 percentage points. Main reason being the successful ramp-up in India since the second half of 2023. On the other side, as mentioned, manufacturing solutions did have lower sales and therefore also lower cross-profit by 5 percentage points. In 2024, we did report restructuring expenses amounting to 1.7 million in the first half. The 1.7 million relate to a relocation of the production of our flooded hitting location in Suzhou in China and also included some small adjustments in Matamoros, Mexico and Mittelfahrt, Denmark. As a result, our adjusted operating profit amounted to 11.6 million of 5.4% of net sales. In the second quarter of 2024, we were able to achieve an adjusted operating profit margin of 8.5% after a weak start into 2024. Higher sales in the second quarter were the main reason for this improvement. The equity DA ratio was stable at 8.1%, including restructuring expenses. As outlined, our board of directors decided last Thursday the relocation of the production of structural profiles from Middelfart, Denmark, to Chennai, India and Tianjin, China respectively. The relocation comes with a one-time restructuring expenses of 10 million, which we will book in the second half year of 2024 and impact our operating profit and net result accordingly. The cash impact in 2024 is minor with below 1 million. Overall, we expect 6 million cash out related to this restructuring. Existing production experience with protrusion in India and China make us confident to further improve this restructural profiles business in the future. Looking at the half-year bridge for the adjusted operating profit, the biggest impact is related to a lower net sales amounting to minus 3.6 million Swiss francs. The overall sales price and material price evolution supported an improvement of 1.2 million. However, this includes price reduction of 7.8 million that were covered by raw material price reduction and lower material usage amounting to overall 9.3 million. The exchange rate impact on the adjusted operating profit amounted to minus 0.3 million. Overall, in Swiss francs, the operating profit before one-offs reduced by minus 2 million. The trade net working capital includes our inventory receivables and also payables. Overall, the net working capital as average over the last 12 months remains well managed and reduced to 20.1% of net sales. In Swiss francs, the overall net working capital amounts to 86 million. The investments of 5.2 million in the first half of 2024 mainly went into continuous improvement measures of our PET production. CapEx remained stable at 2-3% of our net sales. The free cash flow was just slightly positive. A part of having a good adjusted operating profit margin, unfavorable tax and also financial result impacted the net result and free cash flow accordingly. the first half year 2024 a free cash flow of just one million was generated and the financial result includes interest expenses of 3.4 million and exchange rate losses of 3.2 million looking at the balance sheet the net that the assert slightly increased compared to the year end to 63.4 million being much better, though, compared to the end of the first half 2023. Compared to the year end 2023, the equity ratio decreased to 26.2%. Equity was at 83 million, being 4.2 million higher, though. The higher balance sheet total cost a lower ratio in parallel. Compared to the end of June 2023, the equity mainly declined to the acquisition of 40% of FiberLine. The impact from the goodwill was 26.1 million at that time. Cross-profit to EBITDA reached 2.5 times, and all bank governance have been met at half-year 2024. We do not expect a major impact on the debt situation resulting from the relocation of the production in Mittelfahrt, Denmark, to Chennai and Tianjin. With this summary, I hand over to Mitya.

Thank you, Javier. I will share our take on the wind market. And as usual, we are referencing to the Brinkman market outlook. Starting with the key message. The expected growth in wind will kick in later and substantially not before 26-27, driven by EMEA and North America. Global offshore installations are expected to double in 2027 versus last year's levels. Going a bit more in the details, we see shorter market outlook foresees a flattish development in all major wind markets except EMEA onshore, where installations grow driven by stronger permitting, in particular in Germany. Despite all activities and positive wipes related to the IRA subsidies, North American onshore is not growing substantially before 2027. In offshore, we expect delays related to slow permitting, high interest rates jeopardizing project profitability and challenges related to the manufacturing complexity and supply chain readiness. For China, the biggest wind market of the world, onshore wind is expected to remain flat in the next years, which will drive further competition along the wind value chain due to Chinese overcapacities. China offshore will only grow from 2027. To summarize our view, wind will grow but later and offshore to a lesser extent than originally anticipated. Let's change gears and have a look at the marine and industrial market segments. In the short term, we expect the marine business to continue its modest growth trajectory. Midterm, the market is expected to grow 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 we reiterate our expectations to double PET sales outside of marine in the next three to four years. That brings me to the conclusion of today's presentation. Summarizing H1, the year 2024 started slow and Q2 was within expectations. We anticipate slightly stronger sales in the second half versus the first half if demands from wind customers and projects materialize as foreseen. Wind markets grow short-term slower than projected and the business environment remains dynamic and volatile. Mid-term installations expected to grow substantially in the US and in EMEA. Chinese competition is increasing driven by overcapacities and no domestic China grows in the next few years. Our structural profiles business is on track to deliver the targeted break-even performance and is highlighted we initiated the next steps towards profitability by relocating all manufacturing to our sites in Asia. The marine markets resumed their growth and industrial markets continue to offer multiple opportunities, overall performing as expected. We reduced our net debt and we will continue keeping the focus on cash management and operational execution. For the full year outlook, we now expect net sales at the lower end of our guidance and we confirm the adjusted operating profit margin guidance of 5% to 8% for the full year. GURID maintains a strong market leading position with Western wind customers and we will continue to adapt our global footprint and capacities to the market needs, keeping our advantageous position in the wind supply chain. The marine and industrial business will become increasingly strategic for GURIT's future growth, driven by our strong marine position and energy efficiency ambitions across multiple industry segments. This ends our presentation. Thank you very much for joining us today. And with this, I'm handing over to the operator for the Q&A session.

We will now begin the question and answer session. Participants can now ask a question by pressing star and one on the touch-tone telephone. Questioners are requested to use handsets only and turn down the volume of the webcast. If you wish to remove yourself from the question queue, you may press star and two. We will now start the question and answer session with the first question from Jørn Ifrit from UBS. Please go ahead.

Good morning. Thanks for taking my questions. It would be three to four if it's okay, and it would take them one by one. The first one is, please, it seems that some Western wind park operators start to buy turbines from China, which seems to be a kind of new event. What are the implications for your supply chain? How do you see this? I mean, you mentioned rising competition from China coming up due to the overcapacities. But what is roughly the potential financial impact you are seeing for the next two to three years for GORID?

Morning, Jan. Let me take that. To be precise, in the next two to three years, we do not see a major impact on that because we do not expect, looking at the amount of projects which have been communicated and the timeline associated to those projects, that this will have, let's say, short to mid-term impact. a massive impact in terms of total share of installations in Europe. But what we would expect is when volumes remain lower, meaning this is, I'm just saying, a handful of projects, then I would expect that those supply chains will primarily be in China, meaning that Minyang, in this case, would build most of the turbine in China, which would also mean that this would primarily be domestic Chinese business. Once those projects scale, we would anticipate that the Chinese wind turbine manufacturer will establish a European-based supply chain or higher share of a European-based supply chain. And with this, consequently, also look for local or European sources in this case, which means there should be a fair share for GURID to participate in these projects as well. But again, on the timeline, I would expect this is not going to happen before, yeah, three, four years out, in my view.

Okay. Thanks for this. The second question, please, on the 10 million restructuring cost. You were mentioning, linked to FiberLine, what are the underlying cost savings? What is the cost saving run rate for this 10 million one-off costs you are guiding? Is it 2-3 million higher EBIT than from 2026 onwards or even higher? How should we think about this?

Normally we do not outline those savings, but they are significantly higher than the 2.2 to 3 million. As mentioned already, the ramp up of the structure profile business in India last year helped us to generate a break even this year after loss making in 2023. So we expect significant savings from that. And also, as we do that protrusion business already in India and China, we expect significant improvement starting 2025.

All right, thanks. And the last question, if I may, the receivables, I think we're also going up quite sharply. Do customers ask for longer payment lines or how should we think about this? What's the read through?

No, I think this is a normal flow of the business compared to year end. I agree. Compared to the half year last year, I think we are actually just at the same amount. So no, there's obviously there's a pressure to increase payment terms from the customers, but we did not have seen a big move on additional move towards longer terms now.

Okay.

Thank you very much. I go back in the queue.

Thank you.

The next question comes from Christoph Grau from AWP. Please go ahead.

Hello, thank you for taking my question. I just want to get back to the facility in Denmark you just closed. Are further restructuring measures land and maybe different other factories that you operate and can maybe give me some more reasons why you've closed this factory there if it's only because of cost optimization reasons maybe can you outline it a little bit more thank you very much

Sure, good morning. Let's start with the second part of the question. As Javier just outlined, I think it's an unfortunate truth that manufacturing business at high Western labor rates and wage rates is very difficult to do in a profitable way. So we clearly saw a need to become more competitive by improving our cost position by relocating and in this case, leveraging lower location costs in India and China versus I would say relatively high location costs in Denmark. And this was basically the major reason for the relocation from Denmark into India and China. We keep, I want to say that we keep engineering and customer facing functions in Denmark to maintain our position towards those customers, obviously, but manufacturing will fully go to Asia. To answer your second question, as I said and as you have also seen in the last years, I mean, we are continuously challenging our plans. We are continuously challenging our footprint. We are continuously monitoring what our customers are doing in terms of where do they set up new manufacturing plants or where do they relocate plants, potentially impacting the supply chain and consequently also potentially impacting our own footprint. So this is a continuous process and there's nothing concrete planned right now, but obviously we are always considering what to do next, where to build a new plant or where to change our current footprint. So this is, I would say, normal behavior, normal proceeding in our company.

The next question comes from Laura Boher from Octavian. Please go ahead.

Good morning. Thank you for taking my questions. I have three. First, just going back on the Chinese issue, I mean, maybe I'm getting a little bit ahead of myself, but is wind going solar? And by that, I mean, from what you know, can the Chinese, they stock up on blades, given they have such overcapacity, and later on, meaning for years to come, ship them to the West, like they did with the solar panels? Again, from your experience. And second one, in Q1, you mentioned that some tooling projects were postponed. Maybe you spoke about it already and I missed, but have they come through now in Q2, or do you still expect them in the second half? And finally, the orders from the OEM seems to continue with very good momentum. Just to confirm again, when do you expect it to start reflecting in your business? And actually, just quick, why don't you also publish your order intake as well?

Okay. Morning, Laura. Thank you very much for your question. So let me start with the first question. Is wind going solar? I mean, clearly what we see is that China is today already the biggest wind turbine market of the world and we see this in the numbers that 60 65 in some years 70 percent of the new wind turbines and the wind turbine installations are happening in China. So yes, clearly China has a huge leverage in terms of scale and also competitiveness and obviously also a lot of capacities installed in the country. And this is one of the reasons why we are also for our business concluding that doing business in China for China domestically, becomes more competitive. And this is also why we communicated that we are only doing things which make sense for us. We are only going for projects which are profitable and not for projects where we just create sales, but potentially negative profitability. And this is impacting sales in a negative way, obviously, compared to a couple of years back, which we had shown as well. Still, I think that Chinese competitors of us are strong today in China, but they are not necessarily strong outside of China. They also would need to prove to manage facilities around the globe to provide the necessary customer service around the globe. I think this is an absolute strength of our company. So I'm, let's say, short-term not worried that we are overrun by the Chinese, but clearly this is an element which we see where we need to prepare ourselves, where we are working on improving our competitiveness, improving our relationships with our western customers proximity customer service again are two very important elements here and then of course we see and you know that as well in some areas of the world import duties being imposed to chinese supplies to protect certain elements of the value chain. And this is obviously also helping our Western customers and consequently also us to supply a certain share into those markets. Your second question related to the tooling business. Yes, we have seen delays. We have seen delays from Q1 out. We have also seen other delays in Q2 where customers pushed out new projects even into 25. And I tried to mention that in one of my bullet points related to what we've seen, probably the lowlights in the first half. We see that some of our customers, Western customers who are I would say financially more challenged who are in the midst of certain restructuring projects that those customers also delayed for example the start of new turbine platforms or that they decided on purpose to not launch a new for example blade version but keep the existing blade version for a longer period of time and those things are obviously impacting the investment schemes of those customers consequently also the mold business so we see that or the tooling business we see that And this clearly, I would say, had wind impact, which we have considered in our half-year financials and also in the outlook. But clearly, this is something which is going to happen. And now, frankly, I forgot your third question, but Javier remembered it and he covered it.

No, your third question was in general about ramping up the wind business, if I remember well. And then... followed by the question why we do not report the order intake.

It was on the OEMs, the order momentum and when you expect it to reflect on your business. And then yes, the second one, why you don't publish your order intake.

So probably on the third one, I would then afterwards give back to Mitya. But on the order intake, I would not say that with the order intake, you would get a good view on our future sales because we are not measuring it on the order intake, but on the piece of the wallet that we get from each customer. Nevertheless, I take this as an input and we will take a look.

Okay, and then let me just come back. And again, I'm just referring to what I said about the market outlook. The short-term market outlook, we actually do not see major growth in the different markets we are operating in, except onshore Europe, as I said, where we see a stronger permitting market. in particular in Germany. So we have with most of our customers here share of wallet agreements as Javier just said. So consequently, if market is growing, we will also see certain growth momentum for us in terms of volumes here. But again, when I just look at the numbers and what we see and also when we talk to the customers, I think there is a certain level of cautiousness in particular short term in terms of blade manufacturing demand. And again, this is another element which we always need to consider. Wind turbine installation numbers are not one-to-one translated to the amount of wind turbine blades produced. We still see this here. And when you listen to one or the other call of our customers, They even expected to a certain degree next year that they will still deplete blade inventories. And this is also something we see. We see that with some customers year over year, negative impact because they are still eating through sizable blade inventories. And again, this still also has a certain impact. But overall, I would say we in general move with the Western market momentum. And if those markets substantially grow, then we are in. And if they are moving rather modestly, then we are similarly in.

Okay, thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mitya Schultz for any closing remarks.

Thank you very much. Thank you for all your questions. Highly appreciated. And thank you very much for your continuous support. With this, I'm ending the presentation and I wish you all fantastic remaining week and talk to you soon. Thank you.