Gurit Holding AG (GURN) Earnings Call Transcript & Summary

Let me now upfront -- good morning, all together -- now upfront make an introduction, saying that this presentation may include forward-looking statements that reflect the intentions, beliefs or current expectations and projections of Gurit Holding AG about the future results of operations, financial conditions, liquidity, performance and similar circumstances. Such statements are made on the basis of assumptions and expectations which may prove to be erroneous. Also, Gurit Holding AG believes them to be reasonable at this time. And with this, Philippe, I hand over to you.

Thank you, Javier. Good morning and thanks for being in the call. I'm going to go through only 3 factual slides, '24, '25 and then post '25. So if we look at '24, first we have lower sales in Wind. This is because we are focusing on profitable geographies. In other words, we are selling less to China. The Marine and Industrial volumes are growing. In this particular business, we did stop some legacy sales, all automotive sales, but in a focused market sales we are growing. Our adjusted operating profit margin went up 50% plus, so from 4.4% to 6.7%. Wind footprint is being resized. Our Marine and Industry offering and footprint are expanded both in Europe and in the U.S. Our G&A costs have been decreased. We generated a positive free cash flow and we signed a new 3-year banking contract in the last day, in fact. So we have very actively been improving Gurit's trajectory in '24. If we move to '25, we will continue to amend our trajectory, so continue to focus wind sales on strategic markets and customers. We are deploying an optimization tool to wind customers. In fact, it allows them to save resin, so this means to save cost, to save weight in the blades. We are continuing to improve the process at the wind plants. We are discontinuing our carbon fiber protrusion. As you may know, there is a heavy Chinese competition with a huge overcapacity for carbon fiber in China and this led us to take a decision to discontinue this business. We are in the first half completing the restructurings of all businesses we wanted to restructure. We stopped to deliver recycled PET to new industrial segments, for example, transportation or office furniture. We are increasing the sales of specialized foams to niche markets. An example is Subsea. We are having a new CEO. This will be announced in the next 30 days, I would think. Focus on 3 divisions. We are not going to give a sales guidance. We have decided not to give a sales guidance as a possible implementation or increase in all directions of tariffs. It creates uncertainties that can lead to postponement of investment, either for windmill developers or for turbine OEMs. Even when we look at wind market research experts, they are now publishing very different forecasts for '25. So we thought it was not realistic to give a sales guidance. And we believe our adjusted operating profit margin for '25 will be around the '24 level. This means somewhat better for the business we continue and still some losses for the discontinued business, which are going to end in the first half. Post '25, we consider in our plans that the accessible wind volumes for us are going to grow 3% to 5% per year. This considers that the offshore boom that was foreseen for some time is postponed at the end of the decade, so not coming in the next 2 to 3 years and that Chinese OEMs will increase somewhat their market share in the Western world, namely Middle East, Latin America, Eastern Europe. This may be pessimistic. That's what we included in our plans. We have the Marine and Industrial markets growing low single digit in our plants, but the sales are foreseen to increase faster, thanks to new foams we are introducing and the product substitution allowed by recycled PET. We will have this refocused and lean, flexible organization. Our R&D teams have been repositioned close to large production sites, and we are targeting 10% operating profit margin, let's say, when the environment is more stable. So in a nutshell, the repositioning and streamlining that we have started some months back will bear fruit in '25 already, but we will still in '25, have some negative impact from discontinued businesses, and we have this geopolitical uncertainty. And we are convinced that it puts Gurit on a much better trajectory again, once this geopolitical situation will stabilize. So hopefully, sometime in '25 and after '25. Now I hand over to Javier for more detailed explanations.

Thank you very much, Philippe. So a warm welcome also from my side. And then I'm really happy to present you some more details on our financials, but then afterwards also a little bit our estimates on the markets. So if we start with some key financials, we have been already reporting earlier that net sales in 2024 have been CHF 431.7 million after roughly CHF 460 million 1 year before. This represents a decline of minus 2.9% at constant exchange rates. Sales, as we heard, have been impacted by some market challenges and the focus on profitable business, meaning that we have been opportunistic, especially in the local Chinese market. Accordingly, we did start a strategic realignment in response, and we did announce the reduction of capacities in Turkey, being a kitting location and in Italy for PET extrusion. This will lead in the future also starting this year already with a better cost structure and a higher utilization of other global locations. As mentioned as well, we will be stopping the carbon fiber pultrusion activities during the first half of 2025, just keeping the glass fiber business from our original acquisition of Fiberline. Rebalancing our investments between market sectors will lead to an increased focus on the business currently summarized under Marine and Industrials. We have been able to significantly improve our operations in the second half year after reporting 5.4% in the first half year. This means that overall, for the full year, our adjusted operating margin of 4.9% represents for the second half year and a good margin of 8.3% on its own. This means a significant improvement half year 2 versus the first half year. Additionally, we have been able to secure a positive free cash flow of CHF 4.4 million with an ending net debt of CHF 62.7 million at the end of 2024. So if we see a little bit more the evolution of our segments, I will only be very fast on those overviews as we have been shown this already in January. The segment Wind Materials reduced to CHF 285.6 million after CHF 307.1 million in the prior year, which represents minus 3.4% at constant exchange rates. Structural Profiles contributed with sales of roughly CHF 119 million in 2024. If we go to the segment Manufacturing Solutions, their sales declined to CHF 45.3 million, which represents a minus of 8.7%. Sales significantly increased in the Asia market, while sales in Western countries declined, main reason being slightly postponement of customer programs. Our second strong pillar being Marine and Industrial showed a steady development over the last 12 months and across all regions, resulting in a sales of CHF 101 million, representing an increase of 1.6%. We have been seeing a stable development over the second half year and expect a growth in 2025, especially coming from new PET supplies. Overall, our sales declined by minus 2.9% to CHF 431.7 million, which represents a continued business of CHF 331 million. If we move on to the next slide and also focusing on where this improvement year-over-year is coming from, I want to show you first our gross profit margin evolution. Gross profit improved to 18.6%. This shows an improved resilience of our operations. Especially in the second half year, we have been able to significantly improve, and I'm really happy about the evolutions our operations have shown and the efficiency measures that have been implemented. Overall, we ended 2024 with an adjusted operating profit margin of 6.9%, which is a significant improvement over 2023, where we reported 4.5% only. Nevertheless, 2024 has been impacted by some restructuring measures, as mentioned before. Overall, we have been booking CHF 37 million of restructuring costs with a very minor amount we are expecting in 2025. Overall, we still assume restructuring costs to be CHF 40 million, which is linked to the realignment of our business. Important to mention out of the CHF 37 million restructuring cost that we booked, CHF 17.7 million are related to impairment charges, meaning having no impact on our cash flow. After onetime cost, our operating profit was at minus CHF 7.3 million, which resulted in a net profit of minus CHF 27.8 million. If we go to a bridge that we have been preparing for you. From 2023, adjusted operating profit to the 2024 one, we have been seeing an impact from sales volume, price and mix, which shows a slightly positive impact of CHF 0.7 million. This includes a negative amount of roughly CHF 31 million of sales prices, but a significant improvement of the mix and higher production volumes in our locations. At the same time, we have been able to improve efficiencies, which are related to production processes, but also a significant reduction of material which resulted in a positive impact of CHF 7.3 million. In the last box, we summarized the impact which we saw already in 2024 from restructuring with other measures, the restructuring being a positive impact of CHF 2.6 million and the second significant impact being a negative currency impact of minus CHF 2.3 million. Overall, we see the significant improvement to CHF 29.7 million. If we go a little bit more on the balance sheet, the evolution of the trade net working capital. The trade net working capital is the net of inventories, receivables and payables. We are showing here the last 12 months average of the trade net working capital, which shows a significant improvement over 2023, resulting in roughly CHF 86 million. This has, for the second consecutive year, shown a good impact from our focus on working capital and its impact on the free cash flow. If we go towards the CapEx, we have been restrictive on investments, but did do investments where we see growth and also future opportunities. We did put a second half for Manufacturing Solutions in India, being able to produce molds there, apart from our location in China. The free cash flow amounted to CHF 4.4 million. This includes already some impact from the restructuring. So we are happy that we did have a positive cash flow and are convinced -- I'm convinced that for 2025, we will be also capable of minimize the cash drain coming from restructuring and operations. So if we go to some more details on our balance sheet. Our net debt, as mentioned before, amounts to CHF 62.7 million, similar to the year before. Our equity reduced to CHF 60.4 million, main impact being from restructuring and impairment charges. If you look at the ratio of net debt by EBITDA, we still achieved a 2.5 multiple, excluding onetime effects from restructuring being CHF 19.3 million, we even were able to achieve a net debt by adjusted EBITDA ratio of 1.4x, representing a positive evolution year-over-year. I'm really happy to also be able to announce that we have been signing still in February a new financing contract, which consists of a term loan and the revolving credit facility with a total amount of CHF 120 million being part of a club deal with one additional bank partner. It is an unsecured and committed facility, which lasts 3 years until February 2028 with the option to 1 additional year. We have been securing this financing ahead of the current bilateral credit facilities with the maturity date of December 31, 2025. Now let me give you some insights into the main markets, Wind still being an important market for us, followed by our growing business in Marine and Industrial. So if we look at the wind market, we see that the onshore wind market outside of China will grow to 63 gigawatts, which represents a yearly annual increase of plus 14%. We also see at the same time that Western OEMs are improving their financials, strengthening also their ability to execute projects efficiently. On the other side we see China, where the onshore wind market is stable or is expected to be stable until 2028. We also see the U.S. tariffs, which may have an impact, but still there is a policy to support those incentives and may help this onshore growth in parallel. If we go to the Offshore Wind, we see that the global offshore wind is on track for a double-digit annual growth, but still with high uncertainties. So the boom may be postponed even beyond the 2028. We also saw that there have been announcement that China subsidies have been rolled back or will be rolled back mid of 2025, may be having an impact, obviously, on the Chinese competitors to go internationally. At the same time, new auctions, but also accelerated offshore expansions are making us positive about some opportunities here. Overall, in spite of the expected growth in the market, we see that with the accessible wind volumes, our growth ambition is 3% to 5% annually only, meaning that we stay cautious in spite of positive market evolutions. If we go to the Marine and Industrial sector, we see that the marine market continues to grow across all regions. We also see a strong demand for PET across all markets, in particular, related to sustainability. We also see strong opportunities in both sectors. We focus at the same time on the wider marine market beyond luxury boats. We see also that there is a growth potential on diversified PET across different segments, including, for example, office furniture. For Marine, we expect to grow faster than the overall market over the next 5 years, driven also by the opportunity to substitute incumbent materials such as wood and this even in multiple markets. Overall, we expect a high single-digit growth opportunity for Gurit beyond 2025. If we spend some words on sustainability, I'm really proud to also repeat our gold medal from EcoVadis that we received in January 2025, and this for the second year in a row. This makes us really proud and shows also our commitment for sustainability, confirmed by an external evaluation. At the same time, I want to show you some key achievements that we did in 2025. One of those being that we moved to renewable energy, where 71% of our locations moved to renewable energy in 2025. Also in favor of our employees, we did significantly reduce our lost time accidents by 44%, which also shows that we are really very focusing on reducing accidents all across the world of Gurit. At the same time, we are also proud to see that 54% of our waste has been recycled in 2024, overall resulting in an 18% reduction of Scope 1 CO2 emissions. Apart from external evaluations, we are also really proud to have internal elections. For example, Gurit Magog in Canada has been awarded the local community award. At the same time, our location in China has been awarded resource utilization award. All of this proposed by our people and also proposed by our -- also elected by our employees. To give you an idea, our Scope 1 and 2 targets until 2030 include a minus 42% reduction of CO2. And on our Scope 3 targets, we anticipate a minus 25% reduction until 2030, being already now in the target range, so being much, much faster than our anticipation. Now let me give you a summary about what you have been hearing so far. The conclusion, we have taken significant steps to right-size our operations. At the same time, we are targeting a simplified structure being one of our key efforts in 2024, but also beginning of '25. We focus on accelerating growth in the high-value markets, meaning that this is mostly outside of Wind. Leveraging our core competencies will be key to enter new markets, meaning we do not need to invent new materials, but can use, for example, PET in growth markets in Marine and Industrial. At the same time, we did work on our new strategy and are right now launching it together with our vision. And finally, as you see in some of our slides, we are celebrating in 2025, our 119th anniversary this year. So this makes us proud and obviously, hope we could present you that we are designing the next stage of its existence. Related to the outlook, we are expecting for 2025 an adjusted operating profit margin in the level of 2024. Midterm, meaning beyond '25, we are following a midterm target of 10% operating profit margin and are also anticipating a growth in Wind of a mid-single-digit growth and beyond wind, meaning in Marine and Industrial of a high single-digit growth. And with this, I hand over to Philippe for a short summary of the presentation.

Yes. Just a few words. So as you have seen and heard, we have been in '24 repositioning, streamlining, refinancing and at the same time, increasing adjusted profit. So this was a huge effort to put the company back in the right direction. And I certainly want to thank the Gurit team and all employees for that. I'm certainly very proud of this achievement. And now I think we can start the Q&A session.

Yes. Let's just announce next dates. We have the 15th of April with our Annual General Meeting for our shareholders; then the half year report to be published on August 20; and the Q3 sales, October 23. And as anticipated by Philippe, we are really happy to take any questions you may have.

[Operator Instructions] The first question comes from the line of Laura Bucher from Octavian.

The first one is regarding tariffs. I understand there's a lot of uncertainty around the topic. But from your conversations with your clients, what could be the impact on the volumes and sales in 2025, especially now that they're coming in higher than anticipated and also the impact for your manufacturing footprint? I'll take one by one.

Javier, if you don't mind, I will take this one. It's not so easy at this time to understand in what direction those tariffs will apply. We heard about tariffs, as you know, from China to the U.S., increased tariffs, Mexico, Canada to the U.S. In the last couple of weeks, we heard that those tariffs could be circumvent to things like steel or automotive. We heard about increasing freight rates for ships going from -- for Chinese ships going from China to the U.S. So as you can imagine, nothing is easy at this time. The first thing to understand is that those tariffs are paid by the importer. And this means for us, those tariffs in the vast majority of our sales are paid by customers. So short term, this will mean only that customers will have to pay more. If it has competition implications, it will come only in the second term because, as you know, we are industrial companies, and it's not like you can move capacities quickly. If we look at the possible impact on our industrial footprint, and here, again, this is really assumptions because we don't know anything about real tariff being applied. We could, for example, foresee that we move some finishing centers from non-U.S. countries to the U.S. if really there is a high tariff coming for some products. I'm thinking, for example, about wind kits. Today, those wind kits would be finalized either in India, Europe, Mexico, China. We can definitely finish those kits in the U.S. We have already a plant there, and it would be very easy to increase this. This is a limited amount of CapEx. But again, at this time, we are not certain at all that we will need to do that, and we have to wait. What we need to understand also is that the cost of blades imported to the U.S. by our customers will increase, but this is not like there is such a capacity in the U.S. to produce it. And depending of the tariff level, blades, for example, produced by our customers in Mexico, plus tariffs are still much cheaper than blades produced in the U.S. and being subsidized by IRA, if IRA still exists tomorrow, which we also do not know. So again, it's a lot of uncertainty. We are looking at it step by step. We have some plans developed in case all this happen with some small industrial move, but no footprint revolution on our side.

Now the second one is regarding the carbon fiber business. Is there any color on what you're planning to do with it now that production will stop? Is there any progress in finding an interested party?

On the carbon fiber capacity and machinery that we have, you mean?

Yes.

You want to take this one?

I can take this. So obviously, what we will do is stopping carbon fiber production in the first half of 2025. And we are elaborating strategic moves either for our machinery or potential collaboration. But right now, our key assumption is that we stopped the carbon fiber production in half year 1, both in Denmark and also in India.

And the third one is just on CapEx for 2025. How much do you expect and also where?

You mean the investments in 2025?

Yes.

Let's say, we have been strict on the investments in 2024, but obviously, supporting our growth areas, and we will continue doing this in 2025. So we were reporting before about the so-called fulfillment centers that we built up for Marine and Industrial, and we will support this business where we expect the growth also going forward.

[Operator Instructions] The next question comes from the line of [ Karl Mardi ] from UBS.

So your gross margin improved by more than 200 basis points in 2024. Could you elaborate on what was the driver for such improvement? Is it based on lower raw materials?

I take this one, Javier.

Yes.

So we have different factors impacting the gross margin. First, if you remember, we had this carbon fiber pultrusion business that was losing a lot of money in '23, and we said we would come to a breakeven with this division in '24, and this is what we have achieved. To be a bit more precise, we had a breakeven for the division with a profit on the glass fiber and a loss on the carbon fiber, and this is a part that we are discontinuing. So this is one part of the increase in gross profit. The second part is the fact that we have been very careful on sales that were not profitable, even marginal sales in some geographies and particularly in China, which we have stopped. And this improved product mix in the wind material business, which also contributed to this increase. So that's the 2 main explaining factors for the gross profit increase.

And then regarding your restructuring initiatives. Could you provide a rough number for what is the cash impact for 2025 from the restructuring?

Yes. So what we booked in 2024 was CHF 37 million. Overall, we are expecting CHF 40 million. And there is some impairment charges linked to this CHF 40 million being in the neighborhood of CHF 18 million. And we did book a minor amount, roughly CHF 5 million in cash already in 2024 and the remainder being in 2025, most of it.

So CHF 5 million is already booked in '24 and the remainder is out of CHF 18 million or?

So if you take CHF 40 million, right, you deduct the CHF 18 million impairment, which gives you CHF 22 million, minus CHF 5 million, which have been booked in '24 already. So you get around the CHF 17 million. And you can assume that the majority of this will have a cash impact in '25, not all of it.

And then one last one, if I may. So you mentioned that Chinese OEMs would likely enter the Western world. And you mentioned 3 areas: Eastern Europe, LatAm and Middle East, if I'm not wrong. Does this mean that you don't expect that they can enter in Western Europe? Or am I wrong assuming this?

It's right and wrong. So we expect them to take a significant market share in Eastern Europe, Middle East and LatAm. They will enter Western Europe, but here, you have one uncertainty. So we have seen them. We have seen them, maybe you have seen there is one contract in Italy, there is one contract in Germany already. So we have in our plans clearly that they are going to take a double-digit market share in the Western world. But as you know, there are possible duties coming this time from the European Union towards Chinese turbine OEMs, and this could modify the number I just gave you. So we anticipate a slight increase in the market share in Western Europe and a stronger increase in the countries I mentioned before.

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

Thank you so much for listening. So I hope that we could show you an improved operating performance in the second half of 2024, and this will be the starting point together with the restructuring to show also a significant step forward in '25 and also beyond. Any questions you may have, obviously, you can contact us, and I'm really happy to see and hear from some of you over the next few months. And thank you so much for listening this morning.