Gurit Holding AG (GURN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the investor and analyst conference webcast regarding the Gurit recent acquisition of Fiberline I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. speakers today are Gurit's CEO, Mitja Schulz and Fiberline's CEO, Lars Fuglsang. In the Q&A, Gurit CFO, Philippe Wirth; and Fiberline President, Thomas Thorning will also participate. At this time, it's my pleasure to hand over to Mitja Schulz. Please go ahead, sir.

Thank you very much, and good morning to everyone. After our most recent M&A activity, we want to provide today additional information on the background and the strategic rationale of the acquisition and how this impacts Gurit's 2025 long-term plan. Also, we want to introduce Fiberline as well as the management to our shareholders, investors and analysts. We have foreseen the agenda, as you see here on the slide, so we will start with me giving some background on the transaction, followed by Lars, CEO of Fiberline, who will explain and introduce Fiberline and give a little insight in the technology background and the carbon pultrusion market in general. Again, followed by me and a conclusion on the strategic rationale and the link to Gurit's 2025 strategy. We will then end the session with the Q&A. Let me start by providing a couple of details on the transition -- transaction in general. We acquired, on the 27th of April, a 60% share of Fiberline Composites. And last week, we successfully closed that transition. -- transaction. ABN AMRO had -- has the Sustainability Impact Fund, and they were owner -- a minority owner before. So with that transaction, they obviously and consequently stepped out. So now Gurit holds 60% of the shares and the Thorning families, the remaining 40%. Gurit and Fiberline will form a strong player to the wind turbine blade industry, and I will show you that a little bit more in detail. But apparently, one of the major reasons for why this whole action makes a lot of sense for us is Gurit has invested in global presence and global footprint. And on the other hand, we see a strong pull for the products. Fiberline Composites is producing, so matching those and leveraging customer access, global footprint and technology capabilities, we feel makes really a lot of sense to the industry. Organizationally, Fiberline will operate as a separate company until 2025. We have a dedicated Board where Gurit has the majority, and I -- actually, since last Friday, I'm Chairman of the Board and took over from Peter Thorning. Internally, Fiber line will report into Gurit as a new business unit called Structural Profiles. We anticipate synergies in multiple areas. Again, I will come to that in a few slides. But this is obviously related to operational footprint, purchasing, customer and technology. I think the highlight is that we already, in the second half of this year, will manufacture the first carbon spar caps in our new plant in India. So this is what we really think is a strong signal towards time to market of this transaction. The integration of Fiberline, we will manage internally through a dedicated post-merger integration structure. We, on purpose, say let's integrate what makes sense, otherwise keep the strengths and the agilities of both parties. And also to add here, last week was the biggest composite show, the JEC in Paris. We used that opportunity to talk to most of our key customers and business partners. And I can say we unisonal received a positive and encouraging feedback and already dove into specific project requests with certain customers. So overall, the feedback was highly positive from the market so far. A few more details on the transaction, nothing which you haven't seen in the announcement, purchase price for 60% was CHF 58 million, fully consolidated. We acquired a debt of CHF 22 million. And what is important to add here is that we also have an option to purchase the remaining 40% from the Thorning family in the year 2025 based on predefined commercial conditions. We fully debt-financed the deal, and now also, again, not mentioning too much because Lars will obviously introduce Fiberline and also sales development, but last year, roughly CHF 100 million sales for Fiberline. And last message here on that slide, we will review the Gurit guidance and also the impact the transaction has on Gurit's guidance, together with the half year results in the middle of this year. Now let me look a little bit more into synergies as I already promised. And again, we see a multitude of synergetic points which we are now in the PMI structure, I highlighted, are going to capture. Let's start with technology. The ones who know us know that Gurit is an innovation and technology company and Fiberline is as well. Part of the selection for us to conclude on this transaction was that we perceive Fiberline as a leader in carbon pultrusion design and manufacturing engineering. And this, again, is a perfect fit also culturally to Gurit's DNA, and we feel that this will enable us or to technologically to jointly develop new, higher integrated products. This is also what we hear from our customers. This is what they want. They want competent suppliers who are able to solve problems with them instead of, I would say, waiting for specification where a problem is already solved. Footprint-wise, I will show you in the next slide a visualization of the footprint. And I already mentioned, we are planning a rapid expansion of Fiberline products by leveraging Gurit's global footprint, in particular, in the regions which are highly relevant for the wind industry, which is India, in particular, and Mexico. And we both have a pretty good and long-standing relationships to the major Western wind customers. Some more with one customer, some others more with another customer, but this will be purely complementary. And again, I mentioned already we saw positive feedback from those customers. Gurit is also strongly engaged with Chinese OEMs, which is today not the major focus of Fiberline. So again, we see here an opportunity as well to penetrate products from Fiberline's product portfolio through Gurit's sales channels into China. Purchasing majority of the purchasing volume on Fiberline side is obviously carbon, carbon fibers. They have long-established -- well-established relationships with major carbon suppliers. Gurit also buys carbon less than Fiberline, nevertheless, we see opportunities hereby jointly procuring in key commodities, also not limited to carbon resin systems, glass fiber and also in the whole area of indirect purchasing. So finding synergies through joint purchasing activities, again, will be one of the top key synergy projects we are going to start as we speak. And lastly, Fiberline focus today on wind, 100%. Gurit also has a sizable and strongly growing position in the marine and, in particular, industrial segment. Competitors of Fiberline also sell, for example, glass fiber pultruded profiles into the transportation, the construction or the civil engineering industry segments. So we see, also, here an opportunity to cross-sell and leverage Gurit's sales access into these segments, and by doing that driving sales and profitability. Let me now go to the footprint slide, which I just mentioned we have prepared for you. You see the orange circles, this is -- these are the 2 plants Fiberline has today. The major plant for carbon pultrusion in the headquarter Fiberline in Middelfart, Denmark. And there is a facility focused on glass fiber pultrusion in Tianjin. Gurit has a facility in Tianjin as well. Gurit has 4 other facilities in China. So of course, we are now looking into how can we create footprint-related synergies for the Chinese market. But more importantly, I want to highlight the green circles, which we have visualized here. Beginning with India in Chennai, as I said, we already have both teams on the ground in Chennai preparing an industrialization. So we're targeting SOP of carbon fiber pultruded profiles, spark caps, for specific customer already in the second half of this year. And we are in joint discussions already with other customers in the North American market to also, here, leverage Gurit's footprint. And considering decision is not finally done, but considering to also launch manufacturing in the second half of 2023 in Mexico. That sums up a little bit my introductionary part here, and I will now hand over to Lars, CEO of Fiberline, to introduce Fiberline a little bit more detail to you.

Thank you, Mitja. So Fiberline is a Danish company founded in '79 by the Thorning family. We have Peter Thorning here with us on the call, the former Chairman, now a member of the Board. We are just above 300 employees, a turnover of around CHF 100 million, as you saw on the map before. We have production facilities in Denmark. This is also where we have our quite significant R&D, and we have a production facility in Tianjin, China as well. As Mitja said, we are serving the most -- major Western customers. It would be customers like Nordex, Siemens, Vestas, GLM. And our say -- and the service that we provide is really pultrusions. It is carbon pultrusions and glass pultrusions, and it is split into 3 main product groups. We have the carbon pultrusions, which last year was around 75% of our business; wind turbine structures, around 5%; and blade root enforcement, which is around 20%. Where we clearly see the growth is in the carbon pultrusion market, and we have growth in general. Last year, we were looking into 40% growth year-on-year. And we will also be, say, seeing significant double-digit growth in '22. A little more on the products on this slide here. When we say turbine structures, it is platforms like what you see here on the back of the NSL. It is a lightweight, corrosion-resistant structures -- this is what we call the Hellihoist. We also have, say, flooring for the cells. We have tower internals as part of this product group. We have also the root connections, the different types of root connections. So one shown here, you see the blue graphic there, which is really pultruded segments sitting between the bushings, creating a solid and good connection between the boats and the blade structure. And then we have the carbon pultrusion which we will look into more details here on the next slide. So what you see there to the left is, say, a pultrusion. It is really a plank. It is around 5 millimeters thick, up to around 200 millimeters wide. And then it can have any lengths between 100 and 400 meters, so quite long. The pultrusion process is rather complex. It entails everything from getting the carbon fiber weeded, the chemistry, the temperature profile securing, the shrinkage. And we need to, say, create a stable geometric form without defects coming out. And all that is happening within a tool of around 1.5 meter. So a lot of physics going on and rather complex process with a lot of IP embedded. As I mentioned, the pultrusion comes out, say, somewhere between 100 and 400 meters. And in order to be able to ship them we coil them, as you see here on the center picture, and we ship it to the OEM's blade workshop. At this blade workshop, the coils are decoiled. They are cut into length. They are stacked. They are used together in order to form the carbon spar cap. And the carbon spar cap is the main low pairing element of turbine blade. The key with carbon pultrusions is that it enables the turbine manufacturers to design a blade that is longer, slender and stiff. And the reason why it is meaningful to say, substitute the low-cost glass with carbon is really that you can deliver the same energy from this blade with less load on the turbine structure. And less load means that you can save materials in the hub, in the cell, in the tower and the foundations. And the net sum of this is that the savings are bigger than the incremental money that you spend on the car plant in the turbine blades. So it is a good business case, and that is the reason why this is the prevailing and winning design process that all the main OEMs are applying today. And this is what we see here on this market slide. We have onshore to the left, we have offshore to the right. If you look at the most-left table there, the yellow part is the glass infusion, which is the conventional technology and the green is the carbon pultrusions. And you can see that, today, we are looking at somewhere around 60%, going towards 90%, of the market being carbon pultrusions in 2019. This is, by the way, numbers from Wood Mackenzie. So it's not our numbers, it is wood Mackenzie's number. What you have in the second graph there is who are the OEMs that are using carbon pultrusions. And the blue on the top is Vestas. They have been using carbon pultrusion for many years. Also, you have Nordex, which is the dark green. So these are the 2 trendsetting OEMs. And what you see here in '21, '22 is that the other big OEMs like GE and Siemens are also, say, emerging or coming into this technology, followed by the Chinese. And this is really the, say, story behind why we see growth in this market. Offshore is the same, even say, to even more 100% carbon pultrusion is the prediction, which is really related to the fact that carbon pultrusions is becoming even more an improvement when you go into the very long offshore blades. On the OEMs in offshore, Vestas same thing, they've been using it for quite some time. And then you see Siemens Gamesa and GE transitioning right now to carbon pultrusions and, say, bringing in significant scale. And we have the Chinese OEMs following. So this is the technology trend. This is the market numbers. And that is why we, in Fiberline being part of Gurit, see that we will have a potential to grow to -- with a revenue of more than CHF 300 million yearly. These were the words. Mitja back to you.

Thank you, Lars. So let me now continue and conclude with a view on strategy. First of all, to summarize what we just learned and to translate this now in an updated Gurit's product offering. We feel that with adding Fiberline's capabilities, we will enable the Gurit Group to offer the most complete and comprehensive product portfolio to our wind blade customers. We have access to all wind OEMs, so everyone who was just on the chart before, as well as 90% of the global wind blade manufacturers. And we spoke about footprint already. So we feel this is a pretty strong offering to the market. And when we go to the next slide, we try to put that a little bit more also into numbers. And let me clear that slide for you. On the right-hand side, you see in that circle, our understanding of the cost distribution of 80- to 90-meter blade into the different value streams. And on the left-hand side, that's a visualization in what value streams Gurit is today already active, and the blue circle ones are the ones which now Fiberline brings incrementally to the table. Long story short, we could theoretically offer up to 50% of the blade value to our customers. If we would supply every component, which Gurit has in the portfolio, into one specific blade type. I mean, obviously, this will not be the future average, unfortunately. But I think it just demonstrates the capabilities Gurit now has and brings to our customers. And I think what is more or equally important, I would say, besides the critical mass and global reach, combined with local manufacturing, is that we now also enable us with the R&D and design and technology know-how both teams bring to the table to work on new higher and more modularized, integrated product solutions. We see that today, due to the sheer size of wind turbine blades, customers already asking for prefabricated parts which they can then lay into the molds and no longer doing all the mode layup by themselves. That means you need to combine certain composite technologies, core materials together with the glass fiber infused, probably in combination with the spar caps, so newly high advanced route systems. So again, combining these technologies does not only mean scale through just an extended product offering but also the capabilities to further integrate and work on new product solutions together with our customers. Let me now come to the final slide, and this is a review slide I've shown to most of you already last year during our Capital Markets Day, where we introduced the highlights of Gurit's Strategy 2025. And I will, just in a few words, want to explain how we think the acquisitions we most recently did will pay into Gurit fulfilling the Strategy 2025, which we have created. And just let me start with the industry segment. And you see we crossed out the Aerospace business. We were subcritical in the Aerospace business. We found a better owner for that business, and we are now focusing, on the one hand, to be a world-class supplier to the wind industry with a very strong portfolio, as you just heard. But we are also going to further grow and strengthen our Marine & Industrial business because we want to strategically have a stronger second leg, if you will, supporting Gurit's growth going forward. Technologically, we highlighted last year, a lightweighting Industry 4.0 sustainable products, but also a further trend for modularization and integration. Just on the slide, before I explained to you, that we feel now with having more engineering horsepower and more capabilities we can also here support our customers even stronger than we do today. When you look into the different markets where we are active today, then I can say we probably did a lot already over the last 12 months in establishing a global one face to the customer, wind organization with supporting, for example, a strong China team being dedicated in China with a separate organization. We put more focus on the industrial segment because we see that this is, from our perspective, strongly growing. And the acquisition of Fiberline, again, on the one hand, I think, benefit from the wind customer access. On the other hand, as I mentioned already, offer incremental cross-selling opportunities in non-wind segments. And lastly, we have -- we tried to quantify our ambitions for 2025. And I would now say we were a little bit more cautious last year by saying we want to grow mid-single digits plus acquisitions. So to put this a little bit into perspective, I think considering the market developments and what we've just also seen with Fiberline, that CHF 750 million to CHF 800 million top line for 2025 should be absolutely enrich for GBP, and this is what we are aiming for, and this is what we are going for. And this in line with the other KPIs as we have outlined here. That more or less concludes the presentation and the slides we have prepared for you. Again, just to summarize, we feel that with our strategy, we are still on the way to achieve what we've outlined. We feel that the acquisition of Fiberline or 60% of Fiberline will really pay in the fulfillment of the strategy and ticks a lot of boxes here. And now I'm really looking forward to your questions and are already thanking you for your participation.

[Operator Instructions] The first question comes from Markus Mayer from Baader-Helvea.

I have 2 questions, if I may. The first one is on the synergies. Can you quantify the synergies or at least tell us what it is in terms of acquired revenues, cost synergies and also the split of the synergies, cost versus sales synergies? I understood that there is kind of a sales portion that you basically can lever your platform, but at the same time there are also purchasing synergies. So more flavor on this would be helpful. And then the second question is on the remaining 40% stake of Fiberline, are there any options to purchase this remaining 40% stake, and if so, at what terms?

Okay. So let me first start with the synergy question. We are, from today's perspective, not probably able to fully quantify the synergies, which we are aiming for. As I said, we just started a post-merger integration phase. We have structured that to go -- to focus on basically all relevant business areas, purchasing, meaning comparing conditions, looking into leverage opportunities by combining volumes, for example. We see, on the customer side, of course, opportunities. And on the here, we are comparing our framework conditions jointly and develop certain strategies out of that. Operationally, I mentioned that already. We are going to anticipate synergies, but this will be then rather, I would say, cost avoidance related because Fiberline will be able to industrialize, for example, in our plant in Chennai, where I would say most of the legwork has been done already. And obviously, they do not need to hire a fully fledged plant organization because that is available. So this will certainly help us to, overall, make the location in China more competitive. Sales-wise also here, as I alluded to we are at a very early stage still to evaluate what product opportunities, for example, outside of the wind segment we have to cross-sell into industrial applications, for example. But it's still too early to come out with, I would say, really tangible numbers here. We have given ourselves the goal to work in this PMI structure now for the next 3 months, obviously, starting from day 1 already to go for synergies, which are identified. But I would now anticipate that in the next couple of months, we will -- should have a better, more quantified a more tangible view on the financial impact of those synergies. And to your second question...

Mitja, might have another question to the first one. But as I understood, this could be basically really a step change for your company. So is this then -- are the potential synergies more in the range of, let's say, 3% of the acquired revenues? Or is it more than -- where we have sustainable and structural shifts in the chemical industry, which are more than over 6% of acquired sales, or even higher, up to 9%, of acquired sales synergies. Is this would where -- on this range, would you see this kind of acquisition? Maybe this would be helpful to more...

As I said, please give us a little bit more time to come back with tangible numbers. You can imagine that, obviously, in our own business plan and part of the acquisition, we factored in synergies which we see, which we feel are realistic. Today, I think the major focus will be now on better understanding not only how much, but also when will we be able to really go for those synergies. And so I ask you for probably a couple of more months patience, and then happy to shine more light into that topic, yes. To your second question, as I outlined and as we also communicated, we have the option to buy the remaining 40% from the Thorning family. There is straightforward mechanism defined between us based on certain financial fulfillment and conditions. And this is then -- the baseline for this will be the year 2024. And this is also why we are saying once the results of the year 2024 are available, then we can call that option. It is also our intention to do that, obviously, and to fully take over the business.

The next question comes from Jörn Iffert from UBS.

The first one would be, please, to the selling family, if I may. Why is the selling family not taking, for example, an equity stake in Gurit? In particular, considering the strong growth prospects of the wind industry in the medium to long term, so why not remaining committed to the overall business beyond 2025? The second question would be, please, can you comment on the EBIT margin development over the last couple of years of Fiberline? And when do you expect it to be attractively profitable, maybe in line with medium-term targets of Gurit? And what does it need? Does it need 30% more volume? So does it need cost efficiencies that we get a better feeling about the profitability and development of the target, please? And then last question, if I may. You highlighted by 2025, you want to reach sales of CHF 750 million to CHF 800 million. Let's assume in 2022, you're ending up around CHF 500, plus/minus. And this would imply quite strong organic sales growth for the next 3, 3.5 years. What is giving you confidence here? Has the wind market outlook changed in the 2025? Yes, or do you have any concrete signs now that '23 will be much better? So just to learn more about the basis of this assumption.

Let me start with the third question. You broke up a couple of times, but I think I got your question. It was a little bit related to the confidence level we have in the 2025 sales number. I think 2 things to consider here. And just referring back to the presentation from Lars, and you see there are, I would say, 2 determining factors impacting the sales growth. One is, obviously, the wind market. And I think we all read the same publications from the Wood Macs of this world. And we also hear the same, let's say, comments from our key customers, the Western key customers, the Chinese key customers. And I would say the global picture here is, right now, that probably '22 and '23 will be rather flattish on an on or below '21 market level for Western customers. China was about to do better this year. Now I think everyone is a little bit cautious what now really happens driven by the COVID impact and the strong regulations impacting life and business in China. I think everyone also foresees with stronger offshore beginning mid '24, end '24, that there will be an incremental market impact. So yes, market will certainly at least in '24, '25 help driven by a strong offshore penetration. But secondly, I think we need to consider, again, referring to last slide, that we see a technology change totally independent from, let's say, the overall market volumes that blade designs gradually integrate more carbon, more carbon spar caps. Lars gave the technical explanation for that, driven by the growth of the turbine. And that penetration is also strong as we've seen and also as a third-party market institutes like WoodMac communicate. So this will obviously also help. And we've seen that -- we feel that it is realistic to grow the Fiberline business to a range of CHF 300 million. And when you add that up, then we feel with the range I've given, that this is ambitious but realistic for the year 2025. Profitability. I think that's also a good question before I hand over to Peter profitability. The business is right now just driven by the extreme growth trajectory we have ahead of us. I mean the business currently has also the profitability, probably more start-up character, yes? And why is that? Because we are scaling. We are investing in new production sites, ramping up. That means additional people, additional structural investments, networking finance, net working capital financing. But we anticipate that longer term, so let's say, once the next 2 years are done and these investments are being made in India and in China, we anticipate a longer-term profitability, which we think will be on the level of our hitting profitability because the business model is quite similar, it's conversion business, with actually a pretty high share of carbon in it. So we feel that the anticipated EBIT or margins will be probably on the lower end of what you typically know from Gurit's range. And that said, I'm coming to your first question, and I would hand over to Peter.

Yes. Thank you. Well, I think the family remains very committed with a 40% share. We had 65% until this transaction, now 40% of a significantly growing business. And we will not rule out at all that we will remain invested in this kind of activities also beyond 2025. We think this will continue to be a growing market also beyond that time, as you could see. So I don't think that our integration into Gurit, which is the right thing to do for the company, says anything about our commitment to the wind business.

The next question comes from Daniel Koenig from Mirabaud.

Yes, I had some basic questions because can you -- how the market share is of Fiberline in this carbon pultrusion market or the other market participants are? And then I was wondering how pricing has developed of the product. Because from the graph, I looked at -- it seems like Vestas pretty much predominant customer. And if there's only one dominant customer, it normally is not good news for prices. And then I had a third question on raw materials, like can you tell me how raw materials have developed at Fiberline? Is that exploding as well? Or just give me some kind of indication to what to expect that for the moment.

Okay. Daniel, let me start with the third question before I then hand over to Lars, who can certainly say something about market share of Fiberline and, let's say, the development of pricing carbon pultrusions over the last years. Obviously, we are part of the same value chain than everyone else. So yes, also we see inflationary impacts for energy, for raw materials, for transportation and so on, absolutely. And yes, this is also absolutely impacting us. We are able to push portions of that to our customers through either, let's say, more or less, automated contractual agreements or through individual agreements, which we are negotiating with customers. Classically, those agreements are linked to let's say, for example, raw materials and commodities, which are somehow publicly traded or where there is a certain transparency. Classically, you do not have automated acceleration or escalation models to your customers for things like energy or gas, right? These are things -- we are discussing individually with our customers. And these are tough discussions, in particular with the wind customers. I mean everyone has seen also how those guys are doing right now. So yes, absolutely a topic for Gurit as well. The teams are working super hard here to mitigate and discuss with our customers as well as with our suppliers, and to further reduce energy consumption, gas consumption, for example. But yes, there is clearly an impact also to Gurit. It would be awkward if it wouldn't be, right? And that said, I would probably hand over to Lars. Question was on market share and probably price or cost development for pultrusions.

Yes, let me maybe start with the price development question. It is true that the launching partner here was Vestas followed by Nordex. We have not seen a decline in price development. On the contrary, as you also saw on the market share that we've shown -- just shown here, the need for petitions is increasing the capacity available is rather limited. And for that reason, we have been able to keep price. And also, we have been able to pass through the major part of the, say, material inflation that we have seen lately. The carbon market in general is, say, impacted by energy prices, but not to an extent where we say it is perceived as a massive roadblock. We have 2 main categories, material categories that are, say, impacted, it is resin and it is carbon. And we have good pass-through process on both, which is part of the way that we drive business. Mitja, would you have, say, a comment on market share for Fiberline?

You can comment on market share, obviously. Sure.

I don't have the recent figures actually. So I'm actually not able to.

Okay. I have the figures here in the overview, then I will quickly pitch in here, Daniel. I mean as we had seen, Fiberline is today supplying to all the major customers and the market share is in the neighborhood of 20% to 25% today, but we feel that this can grow further because we see that there is a stronger penetration now in particular with the offshore segment. And here, Fiberline is pretty strong. So that is, let's say, probably also going forward, a reasonable expectation, somewhere between 20% and 30%. This is what we also have in the strategic plan for the next couple of years. I hope that answers your question.

[Operator Instructions] Gentlemen, so far there are no more questions.

Okay. Then I want to say thank you very much for attending. I wish everyone a fantastic remaining week. [Foreign Language]. Talk to you next time. And again, thank you very much for your attendance.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.