Huber+Suhner AG (HUBN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Huber+Suhner's First Half Year Press Conference 2020. I am going to give you a first overview about details of the first half year 2020, and our CFO, Ivo Wechsler, is here with me. He will then do a deep dive into the financial results of the first 6 months. At the end, I'm going to give you an outlook about our markets and about the business, and we will have then the option also to ask for the permission to ask a question. We will have an introduction by Chorus Call at the end, how that will work. We all have planned for different 2020 and Huber+Suhner is obviously not the exception. We started the year quite well, and it was not only -- it was actually just about a month old when we got the message from China that outbreak of COVID-19 is so severe that the Chinese government had to impose very severe lockdown on the country. Many of us at that time might have observed that and has never imagined that soon the whole world will fight against this virus with similar severe measures. Actually, when China went into the lockdown, just after the Chinese New Year, we have still been working full steam in the rest of the world. And when China already went back, we've been confronted with more severe measures in most of our markets. Actually, also Huber+Suhner has been affected by the outbreak first in China. China back up in March again has recovered quite well later on but then from March on, the rest of the world was impacted. We've seen lower sales. We've seen lower orders, like many other companies and just the order intake was positive compared to the second half of 2019, which was a very weak half year for Huber+Suhner. When we compare with previous year's period, we obviously have a very tough benchmark as last year was a very strong first half. And so it's not a surprise that Huber+Suhner shows a decline of sales in the double-digit percentage range. I would still consider the result with a bit of distance as solid in a very difficult environment. The strong cost awareness has enabled us to report a solid EBIT margin in the first 6 months. We have implemented very stringent cost management measures right in the beginning, including salary cuts and also short labor where applicable, also some first structural measures in some countries where short labor was not an option have been implemented. So the 6.7%, we would consider solid under the given circumstances. However, it is below our midterm target range, which remains unchanged between 8% and 10%. The first 6 months have not been result just result-wise a challenge, but also to maintain the global supply chains alive and to deliver to our customers a decent availability of our products very strong efforts were needed. At some point, almost all production sites were affected partially or completely by a shutdown; however, we were lucky to be able to reopen most sites within very short time, mainly also due to the fact that our products were considered system critical, and we could reopen our production sites with special permissions in most countries. Nevertheless, the challenging situation was also applicable to global transportation situation where special efforts were needed to transport goods around the world and some transportation capacities were really scarce, and we had to reserve capacities at quite high cost in some cases. Overall, I think Huber+Suhner managed quite well to have a decent availability of products and services to the key customers around the world. Also due to the fact that we have a global footprint with regards to production facilities, and we could move goods around in our production network from one place to the other and by that, breach certain restrictions or lockdowns in certain parts of the world. In the office, almost globally, from March onwards, we went into home office, and we have to say, like most of you that this was a very positive experience. We have found out that efficiency and productivity didn't suffer under this home office regime, and also this effect due to the very high flexibility of the employees in dealing with this changed environment as far as their workplace was concerned. We've implemented in the production sites where home office wasn't possible, very stringent hygienic and distance measures so that we could keep the number employees tested positive for COVID-19 on a very low level. So among our global staff, we have had not more than 30 positive tested cases, which luckily are all now back to work at this stage. These new ways of calibration have also accelerated digitization and the digitalization in our work environment and many of those measures that had to be put in place overnight will survive the post-corona period for sure. The figures at a glance showed a declining sales by 16% to now CHF 377 million. Orders slightly above our net sales with CHF 20 million more on CHF 397 million declined by roughly 12%. We were able to have the 6.7 EBIT percent on the operating profit, which corresponds in absolute terms to CHF 25 million. On the net income, we were able to achieve CHF 20 million, which is a decline of 47% and in percent of net sales, 5.3%. Now, as always, I'm going to give you a bit more details about our result in the 3 dimensions of our business, which are the technologies, the markets and the regions. I start with the technology, and -- RF. The RF Technology segment, as you may remember, has been a shining star in the last 2 years, delivered excellent growth at very nice margins. Also RF was affected by the corona crisis with a decline of 18% in sales and 14% in orders. RF was still able to deliver double-digit EBIT margins. It is mainly due to the fact that the industrial submarkets, aerospace and defense as well as test and measurement held up comparatively well. We also can say that there is a very solid opportunity pipeline in RF with -- as always with high-margin applications. In several occasions, we have indicated the opportunity for Huber+Suhner to enter the distance radar business in automotive, and I can confirm that we are progressing with this initiative. And we are making very clear progress, and we expect first sales in this high-tech application with distance-radar antennas already in 2021. The fiber optic technology, for those that follow the company since a while they may remember that FO has been the very stable pillar in the past, but has gone through more difficult times in the last 3 years. The last 2 years, we have then had a positive trend, which has now come to a temporary stop. We have missed prior year net sales by 12% despite the fact that we have acquired a company, which is consolidated in the fiber optics figures last year. The expansion of mobile network, mainly 5G is still a very bright option for Huber+Suhner and the FO technology and it's progressing, but we're at the lower speed right now. We have seen a certain slowdown of those 5G rollouts in most regions due to the fact that COVID has hampered fast progress of installation of 5G gears. The demand for data center, which is the growth initiative of FO has been at a very good level, and that is not a surprise as we have all experienced that the cloud applications as well as data traffic has not suffered during the last 6 months and due to the COVID-19 outbreak. We see good prospects with our optical switches from Polatis, but also with our WDM systems and components coming from Cube Optics for the next few months and the next 1 or 2 years. So that I'm quite optimistic that this upward trend will continue in the future. The LF Technology segment was also affected by 18% on sales now with CHF 117 million sales. On a similar level, the order intake has gone down even 21%. And despite the relatively hard decline of the top line, this segment was able to maintain a profitability at CHF 8 million or 6.8%. The main business of our LF technology segment is railway. There, we have seen a certain delay the awarding of contracts due to uncertainties, but also due to lockdown and closure of complete railway factories. On the other side, our growth initiative here was the high-voltage cabling for electric vehicles has doubled its sales and is on a good track. We've been also able to defend our market leadership with high-power charging systems, and we have just launched 2 more products for high-power charging, which I will explain a bit more in details at a later stage. In general, we are not concerned for the low frequency technology segment as bidding activity in railway as well as in EV applications is on a very good level, and we expect that activity and orders will consequently pick up when the fog will lift. When we have a look at the markets, we can see that all markets are with lower sales. So the shares between them are almost unchanged. The industrial market has hold up at best with about 13% decline, while transportation shrunk by 15% and communication by 19%. So communication still remains the largest market with 40%, while the other 2 share the remaining 60% of our top line. And we have a look at the region. We can see that Europe has been least affected by the decline and was comparably strong with only 4% less sales in the first 6 months of 2020, while the Americas as well as Asia suffered much more with 27% and 26%, respectively. With that, we are now back to a relatively high share from Europe, Middle East and Africa, with 55%, while the Americas account for 18% of our sales and Asia accounts for 27%. With that, I have concluded my first part with the overview of our first half year figures, and I would like to hand over to our CFO, Ivo Wechsler, who will explain you the financial results in more details.

Yes, good morning, everybody. Also a warm welcome to all participants from my side. As mentioned, I will quickly lead you through the financial results in more detail, and I start with the order intake bridge. As you can see here that we have a decline of CHF 52 million, which corresponds to 11.6%. Out of that, CHF 47 million or 10.5% is organic decline, then also quite a significant decline with regards to currency and copper of CHF 24 million, which corresponds to 5.4% and then a positive contribution from the portfolio. This means for newly acquired company compared to last year. So it mainly consists of the BKtel, the one -- the German fiber optic company we have acquired at the end of last year. This is the large part of it and the small amount also coming from the Kathrein portfolio antenna business, which we acquired in the middle of last year. I think positive to mention on that slide is also that compared to the second half of 2019, our order intake picked up by CHF 45 million. Quite a similar pattern on the sales bridge with 16% decline. Out of that organically 15%, the currency is CHF 20 million, copper CHF 3 million, so together, CHF 23 million. And the currency is, let's say, compensated by the portfolio effect of also rounded up CHF 20 million. Out of the organic decline of CHF 67 million about the quarter, so 25% has to do with reduced activity in the 4G rollout in India. When we look at sales development per technology segment, you could see that reporting-wise, low frequency and radio frequency declined by exactly the same amount whereas fiber optics declined only by 12%. However, if we analyze that then on an organic level, you can see that fiber optics has the highest decline. This is to do with the highest portfolio effect because, as mentioned before, BKtel is fully consolidated into fiber optics and low frequency has no portfolio effect and also the copper effect that's why organically it has the lowest decline with 11.9%. On the gross margin side, I think we could stabilize on the same level as the second half of last year. However, obviously, a significant decline compared to the previous year period, first half 2019. But there to mention is, first of all, 37.2% is also for Huber+Suhner quite a high number. But overall, I can confirm that based on our product mix, the margin as such, overall, are still healthy. However, we have been directly impacted and also indirectly from this COVID crisis. And the direct impacts are, actually, we've heard before, we had lockdown in several of our production site. Also, if this is only for, let's say, a limited time of period, there is still then fixed costs, which cannot be absorbed. And secondly, also the transportation costs were significantly higher in certain period, sometimes 4x what we have seen normally, and that also impacted our margin because we can't just transfer that to our customers. On the indirect side, I think we are also prepared to ensure a high delivery performance. We ensured some safety stock. And that's why also inventory level overall went down -- went up, but the overall inventory provision had to be increased due to this, let's say, partly also due to the safety stock and gave the negative contribution. And fourthly, also indirect, there was pressure on the Swiss francs, which obviously also put pressure on our margin, but the exact impact, I will also comment and show you later on. On the other side, I think we did a very good job on the operating expenses. I think we have heard before, we actually implemented tough cost-saving measures as soon as we saw that we have significant lower sales levels, and we could reduce our operating expenses from CHF 121 million to CHF 107 million in the first half of this year. This corresponds to a reduction of 11%. And we have heard the measures. I think there were short time work where applicable, temporary salary waivers. We had obviously less travel cost, less marketing activities, but we generally reduced all external spending where appropriate. When it comes to the different categories, you can see that along with the sales, the sales and marketing costs went down quite significantly, and the administration costs compared to the first half of 2019 as well. But traditionally, we have slightly higher administration costs in the first half year compared to the second half year. On the other side, on the R&D, we were reluctant to stop the project, so we invested further; however, the increase compared to last year from CHF 21 million to CHF 24 million has to do with BKtel with a portfolio effect where they have also quite R&D extensive cost base. So then here as a summary, you have seen that already on the different technologies segment slides an overview of the EBIT per segment. So radio frequency, as we have heard, still double-digit with 12.4%; fiber optics, obviously not satisfactory and not according to our internal requests with only 3.1%; and the low frequency, quite -- despite a quite significant decline in sales, still a decent margin of 6.8%. Also the corporate cost went down quite dramatically. So part of it has to do also with the cost measures, which has also impact on that line, but also it had to do that last year, we had quite a significant amount due to our 50 years activity -- celebration activity in the first half of 2019. So now to the FX development. I showed you a similar slide already in March. And as you can see that there was a strong devaluation of all relevant currencies for Huber+Suhner versus the Swiss franc. And they were both down compared to the end of last year, but also when you compare the average of the first half of the year 2019 versus 2020. But also at the very low, the bottom line, where it's called FX mid-August, you could see that in certain currency, obviously, the strong devaluation continued, in particular, in the last few weeks in the U.S. dollar, but also in the renminbi. So obviously, there will be -- it will be further pressure on our margin due to these circumstances. On the right-hand side, I did the same as already in March. I calculated for you what would be the result if I would apply the first half year 2019 FX rates. And you could see that on the sales bridge already mentioned CHF 20 million more revenues and the EBIT would be 29 corresponding to 7.3%. So this means on the EBIT, 60 basis points or 0.6 percentage points coming from the, let's say, lower -- or the stronger Swiss francs with the FX impact. Positively, I think the financial result, which is neutral. I think the FX impact was similar or the same level as last year. So this is mainly related to the hedging cost. And thanks to higher interest income, we could actually balance out debt and coming down to a neutral financial result in 2020. Also, I think, a good picture, a stabilized level of the tax rate. The mix was not quite comparable compared to last year. That's why we ended up in first half of 2020 with an effective tax rate of 21%. On the investment level, I think we continued to invest significantly in automation, but also digitalization, and we will also continue to do that. And as announced, that's why we invested CHF 80 million first half year. That's in the expected range of 4% to 5% of our net sales and -- which will also continue going forward. On the balance sheet, I think quite stable. Overall situation, the balance sheet went down by 2%. We have normally in the first half of the year, we have an increase in the net working capital positions that's why other current assets and other liabilities went up compared to the end of last year, but were down or at the same level compared to 12 months ago. With regards to the reduced cash, I think it's easier to be explained on the next page, so I go over to the cash flow. And you can see here that we had a cash flow from operating activities of CHF 5 million. And this is clearly not good enough. It has to do with lower profitability in combination with the increased net working capital. On the other side, I can also mention that we didn't delay any payments or move the payments into the second half year to look better. So that's why we are convinced that in the second half year, the cash flow will also improve again on operating level. We have had unchanged investing activities. And 1 comment and also to the dividend payment. I think also there, I would like to remind you that we didn't cut any dividend compared to the original announced and paid according to our policy, CHF 31 million in the first half of the year. That's why we ended up with a free cash flow of minus CHF 45 million compared to minus CHF 32 million 12 months ago. So then I'm already at my final conclusion of the first half year. I think overall, yes, it's -- we had a double-digit decline in order intake and sales. However, the positive thing was the momentum that we have a positive book-to-bill in this semester of 1.05. On the other side, positively for me is that we could really reduce the cost and manage them quite proactively. And in the current circumstances, achieved, then the solid EBIT margin of 6.7%. Cash flow, as just mentioned before, that's not good enough, so we need and will improve into the second half year. However, if you look with a certain distance to our balance sheet and to our financial and liquidity situation, I think we are still in a very comfortable position, and our balance sheet allows further strategic flexibility when it comes to further investments. This is it. I will now pass on back to Urs, where he will comment on the outlook for 2020.

Thank you, Ivo. I'm going to share with you the outlook 2020 and also give you our opinion on how the markets will develop. First of all, I would like to share with you a few milestones, which we believe are strategic for the development of our company and which are highlights of the last 6 months. On the communication side, we have just launched a new optical switch. We have been the market leader for all optical switches already. And we have been the supplier of the largest available all optical switch in the market with 386 ports. What we have launched now is a switch with even more capacity, to be precise, 50% more capacity that has a port density of 576 ports. And by that, we have put an even higher difference between Huber+Suhner switch and the next largest switch of the competition. The operators, mainly the cloud service providers, they are asking forever higher port counts on those switches. And by launching a larger port count optical switch to the market, we expect that this will open up new opportunities in this very attractive and growing market. On the industrial side, I have mentioned our leading position of high-power charging system, which we have managed to achieve in the last 3 years. We have now 2 new products launched in this segment. With our RADOX HPC500, which is a cooled cable at 500 amps with a cable rated at 1,000 volt. And with that, we can obviously charge cars, which are able to take this power. We can charge cars with 500 kilowatt. To make an example, a car with 100-kilowatt hour battery would be charged in 12 minutes fully. And with a 100-kilowatt hour battery, depending on the weight of the car and other things, the range should be at least between 450 and 550 kilometers. We've also complemented our existing portfolio with 200 amps system, which has a non-cooled cable, but it has been a request of our customers to also for the 50 to 200-kilowatt range Huber+Suhner cable since they and their end customers really like the Huber+Suhner connector. And so far, they had to go to a competitor's product for the uncooled cable, which they don't need to do now any longer. On the transportation side, in the railway area, we've been able to sign a framework agreement with Bombardier that has already been in place. So we were able to prolong that by another 5 year. On the other side, we will have to see now how this business develops as Bombardier has been acquired by Alstom, and Alstom has got approval by the antitrust committee to also complete that transaction. On the communication side, again, our new acquisition, BKtel, has launched a very attractive product, which has proven to be now a key product in the last 6 months where particularly broadband connections to private houses were really stressed due to the extensive use of home office, and BKtel has launched an RF video overlay product, which can be used by cable operators to increase the bandwidth of their connections to the households by taking the video on a different channel, which leaves more bandwidth on the other channel for all other broadband applications in the house, so that the video channel does not eat up the bandwidth capacity of the connection, but leaves it for all other applications. With this second channel for the video, there is not another connection needed, both channels are transmitted over the same line. These are just a few highlights out of many. And with that, I'm going into the trends into the main markets. Fundamentally, we don't see structural issues in any of our key markets. On the communication side, we've just been confirmed that with a period where those communication lines, particularly to the private houses have been essential for conducting our work from home. And we have seen that and also that's been confirmed by many governments that broadband networks are a system critical part of every country's infrastructure. I'm sure that mid- to long-term that will also drive the investments into this infrastructure even more so that all broadband companies have not suffered very much during the last 6 months in the corona crisis because nobody has really dared to cancel his broadband connection at home in this period of time. The mobile network densification will continue towards higher capacities, better coverage, but also shorter latency. The expansion of 5G will help to densify the networks and give higher capacity, and we foresee that they will gain momentum again after the COVID-19 slowdown when installation teams can install the 5G equipment without any hindrance. On the other side, the importance of 4G or LTE mobile infrastructure rollouts will go down and will continue to affect the volume in the field of communication. So that we cannot just take the 5G investments as additional volume for Huber+Suhner to tackle. On the other side, also the increasing data traffic in the broadband networks is increasing further and also 5G will drive that again to the next level so that investments into fixed line infrastructure will continue. And last but not least, in the communication market, we see further potential in all optical switching, also is the newly launched high capacity switch. And also, there is potential for active and passive WDM system as well as RF over fiber solutions, where we are also a strong player. In the transportation market, as I mentioned, there was a bit of a slowdown in awarding large contracts. We don't see a general slowdown in the market as the inquiries on our table are on an all-time high, and we expect the railway market to back once COVID fog will lift. On the automotive side, we are not a very large player in the field of conventional cars. Our focus lies on electric vehicles and on the high-voltage cable. In electric vehicles, we see still a very strong market demand, particularly also for Huber+Suhner in the area of commercial vehicles, which are trucks and buses. So that this doubling of sales that we have achieved this year versus last year is probably just an intermediate milestones, and I'm confident that we will be able to design in our high-voltage cabling in more platforms, and we will be able to grow that business going forward. On the industrial side, we serve a variety of different applications. There is a general statement that for highly differentiated products, there is still a good market, and we will focus further on those applications. We can say energy applications have developed quite favorably, wind power under the energy for instance, but also our test and measurement business has held up quite well in the last 6 months. And last but not least, we also expect a strong dynamics to continue in the market for high-power charging systems. This is our RADOX HPC, the RADOX -- the new RADOX HPC500 as well as the uncooled 200. Just a small remark here. We report this business on the industrial and not under the automotive market because we sell to system integrators like ABB and the like. With that, I come to my last slide, and the outlook, and I mentioned it at several occasions, it's always difficult to predict future business in our very agile environment. But at this stage, with corona, there is an additional uncertainty that makes the forecasting at this stage very, very difficult. The global value chains, they have largely stabilized. We are up and running in all plants. And I think we have learned to live with the pandemic, and we got organized in a very short time, but we are far away from having a pre-corona normal life, as you all know. The development of the currencies, as Ivo has outlined, is always watched by us with an eye as it has an impact on our business, as you could see from Ivo's comments, and the Swiss franc is likely to remain very strong. This also fueled by the fact that the Swiss has relatively low public debt even after this corona crisis and all the support measures put in place by the Swiss government. We have seen countries and nations with much higher public debt that have put a high amount of debt on top of that, and that will definitely drive the Swiss franc not down, but keep it at least on the level or drive it further up and a company like Huber+Suhner will have to live with that and execute measures against the strong Swiss franc. I can also say, and I've mentioned it before, we don't see structural issues in our markets, and we are focusing on promising growth applications, be it in communication, be it in transportation, or in industrial, I think we are well positioned. We have a strong balance sheet to still invest to continue to invest in R&D, but also still have all the freedom to look at M&A and other investments so that we believe that we are in a very strong position to regain momentum once the market weakness is over. So from today's perspective, having said all that and provided there are no further lockdown measures, and the Swiss franc doesn't gain significantly in strength, we expect the company sales in the second half of the year to be of a similar magnitude as in the first half. This includes a certain recovery of the market, but typically for Huber+Suhner, the first half is stronger than the second half and there is also a December impact going into the second half, so that to keep the first half year's level, we need a recovery of the market. On the EBIT, we expect the EBIT margin for the full year to remain at least on the same level as in the first 6 months of 2020. And with that, I have come to the end of our explanations and of our presentations, and I would like to hand over to the moderator to explain how the question-and-answer session through this video will work. Thank you.

[Operator Instructions] The first question is from Reto Huber from Research Partners.

Congrats on the very good management through this difficult time, especially on the cost side. Now I have 3 questions. The first one relates to your outlook for the second half on the revenue side. I mean, you've just mentioned it, that the first half is usually always stronger than the second one. So I was just wondering what's your prediction interval when you're saying about same level? Is it like plus/minus 10% or the same mean more like plus/minus 3%. That will be the first one. And then the second one. With the admin expense, which came down significantly by CHF 7 million versus the prior year period, I was wondering how sustainable it is because I imagine that short time leave effects and also like traveling effects, mainly marketing and selling expenses are not too much admin. And then the third one relates to your radio frequency automotive business. You said that you expect, first, revenues with radars for distance control next year. And I was wondering how large you expect this market to become? And also maybe how long it takes until the full potential is going to be reached?

Yes. Thank you, Mr. Huber, for your questions. I will try to follow from the last to the first. It was a bit difficult to understand you in all details. I will try to give you the answer, and I hope I have captured your question rightly. First question was about the RF automotive initiative with RF distance-radar antennas. I mentioned first sales next year. And we expect that this business will pick up over the next 3 years and have a peak in 2024, 2025, which is a normal life cycle of a product going into an automotive platform. Usually, those product lives in the automotive, they last about the same time as a platform, which is between 6 and 8, maybe 9 years. So it's a normal life cycle, which has a ramp-up and then a peak in year 3, 4 and 5, and then it goes down. But we have been able to achieve a designing with the first product. We are working on designing with more products. As you may know, they are short-range radars, long-range radars, and in the future, car will have similar of those antennas on board. And we are working on more designing so that it's difficult to say. We try to develop that business as a new pillar of Huber+Suhner. I can't give you an exact figure because it will depend on the success with additional designings. And then also, there will be, of course, hopefully, new inquiries also coming in the 2 few years so that will not have just a spike in year 3 and 4 and then a dying business afterwards, but we can maintain a decent volume, decent volume here. That was one question. Then I think I'm not so sure, but I think just your second question was about fiber optics.

No admin cost.

Admin cost, maybe Ivo Wechsler can...

Yes, I think -- yes, you mentioned that we were able to bring it down quite dramatically. And I think, as you see, I've also believe to hear that it's a mixture of, let's say, actually temporary measures partly and also some, let's say, structural method, which brought this admin cost down. But it's clear that certain -- I mean, certain costs will come back when we would reduce our short time work or if we would start, let's say, to travel more, but mainly then in sales and marketing. But at the end, I think it's our job then to align, let's say, the cost structure with the new, let's say, sales level going forward and make sure that, let's say, we can optimize further. However, yes, certain costs will come back, that's for sure.

Okay. And then there was a question about the level of profitability from FO, whether it's 3% or 10%. But I can say that, of course, we are not happy with 3% profitability on our largest technology segment, fiber optics, and we are working hard structurally, but as well strategically to bring that segment back to double digit, and we have a plan, and we have also the hope that this will -- this we will be able to manage over the next 2 years to bring FO back to double-digit EBIT margins. And the outlook. Yes, the outlook is difficult, as I mentioned. And I think you also related to transportation outlook. You know that we have 2 strong markets for railway. One is Europe, and one is China. We see good activity in Europe. We see that the market in China is more volatile. It's up and down and there it depends very much how much the Chinese government really releases in terms of investments and projects. We've been very strong in 2018 after we waited for this business for 1 or 2 years before. Then it went down 2019 and actually, the outlook in China is quite okay. The Chinese government has promised to issue more orders on these high-speed trains. But so far, they don't seem to come through to Huber+Suhner, so we expect them to come. Actually, we see that China has recovered quite well after the corona lockdown. But since then, at least on our side, China has not developed extremely strongly this in a bit contradiction to the growth rate, the Chinese government has published with more than 3%. And also, the promise that went with it that they will invest in critical infrastructure and areas where Huber+Suhner actually should benefit. But from that, we don't see so much yet.

The next question is from Rolf Renders from Helvea.

Maybe in light of your growth initiatives, our 4 areas and your previously mentioned company target, I think, was like CHF 100 million per segment. I was wondering if this reason could change any of those estimates? And may be more interesting, would you be able to give a few real-life examples of what you see from client behavior, maybe per segment. So what's going on with aviation? I mean, the developments with Airbus, how is that impacting your business? Or with trains now with Alstom buying Bombardier, could that have a risk that you lose that business? Another interesting thing, which you always read in the media is the developments about Huawei. That will be interesting just to get some feel of what's happening in the market at your clients.

Okay. Mr. Renders, thank you for your questions. Let me start with the growth initiatives. I give you just a very brief indication where we stand on them. Of course, the CHF 100 million, that's a ballpark figure, which we have put out, whether it's 80 or 120, I think that is more symbolic. I think important for us is that we really grow those businesses, which offer the potential for Huber+Suhner to grow, that we grow it really to a substantial level and make sure that these markets and these businesses become a strong pillar of our company, and we take a certain position. On the EV side, we are progressing. As I have mentioned, our focus has shifted slightly to commercial vehicles because we find that the price pressure is lower there and the strength of our products can have more impact and the differentiation is higher. We are progressing well with designings, but also here, a design, it means a nomination. And then it doesn't mean that you have immediate sales. They will kick in a year later with a ramp-up, and we will see gradually more sales in this growth initiative that I'm convinced. How much it's going to be, will depend on future designings, which come on top of what we have already. But there, I would consider, we are a bit late, but we are on track. For data center, we have had a bit slowdown last year, which was mainly project and customer related. This year, we were able to grow the business again. It's a market, which is not new and Huber+Suhner is a late comer here. So we have to really fight very hard to win customer by customer, but we are making progress there, mainly on large data center caller accounts. And I'm confident that we can, over the next year, grow that business substantially, whether it's going to be CHF 100 million or a bit less, I don't dare to predict right now. Aerospace and defense is -- has been already a business before. It was declared growth initiative. And so there, we are actually the closest to the CHF 100 million. And this also thanks to really nice growth rate over the last 2 years. This year, we also see a bit of a slowdown, which I consider to be temporary. We expect aerospace and defense initiative to pick up speed again, latest next year. But this is also a bit large program business with satellite manufacturers. And so you have those long-term cycles in this business. So I think we have to watch growth over the cycle here. The small cell initiative for us is one that is now disputed, whether it's a growth initiative or not. The problem is that, yes, we see small cell rollouts, we participate, we have products available. But for us, it's very difficult to keep it separate from our other sell-side business. Because for the operators, it doesn't really matter whether it's a cell site rollout or a small cell. They are just trying to renew their networks with 5G. And for that, they renewed the macro cell gears as well as they are densifying the network with small cells. And we have a bit of an edge to keep track of what goes where, and we may merge that with our cell-side activity. But yes, this business is also growing, and we are participating in that. That was -- that was the growth initiative. You also asked a question about the merger of Alstom and Bombardier. It's no secret that we are a strong supplier to Bombardier. We are not a strong supplier to Alstom. We don't expect that it will have an immediate impact on Huber+Suhner as platform business will continue and the Bombardier platforms will not disappear. They are designing with many national train operators and in those platforms to replace a supplier, that's extremely difficult. On the other side, it also offers an opportunity to get into Alstom with a higher share. But I don't expect that this huge railway company will rely on just 1 supplier so that I expect Huber+Suhner also to play a significant or important role in the new setup when Alstom takes over Bombardier.

And Huawei?

Huawei. Yes, Huawei is doing really well on the handhelds, that's mainly due to the local market, of course, also on the Chinese territory, their rollouts, they continue. But we see that Huawei really struggles for obvious reasons in the export markets, not in all, but in many, and we see the volume with Huawei on a different level now. So their network business on the active side as well as on the infrastructure side suffers clearly from these bands. And we see that Huawei loses due to these bands. They lose clearly market share in the export business. And with that, the business of Huawei -- of Huber+Suhner with Huawei is also under pressure.

All right. That's great. Thank you. So the gold initiative, if I summarize are from your point of view, clearly on track. And there was 1 question open on aviation because that's quite a shock what's happening to the airplane demand.

Yes, I understand...

It's significant for you or...

I understand your question as the airline business is affected among the most from the COVID-19 outbreak, be it for operators, but also for airplane maintenance or for manufacturer of new airplanes. I can tell you that we are supplying into the airplane industry, but it is a very, very small fraction of our business. And so we will not be affected heavily by the downturn of this industry.

[Operator Instructions] The next question is from Marc Kaufmann from AWP.

You mentioned you're well capitalized and you have financial flexibility also probably to buy business. Can you explain a bit more where do you see chances to buy companies or businesses in the near future and are talks in this direction already?

Yes. I cannot be very specific on this point, but it is clear that we have the financial strength to do, I would say, decent-sized acquisitions. We are scouting for opportunities. We always maintain a long list and a short list. And I can assure you that we are always checking on acquiring company also right now, and it goes without saying that in difficult times, if there is appetite combined with financial strength, that's also an opportunity, and we will carefully watch the targets on the market and evaluate what could complement our business in an excellent way. So we are working on that. That's ongoing, and that's work in process.

There are no more questions at this time.

Okay. Maybe one last round. [Operator Instructions]

We have a question from Richard Frei from ZKB.

Just 2 questions, a bit detailed ones. First of all, in fiber optics, the WDM demand. Can you give us a bit more flavor what type of product it is? Is this new generation as you somehow have, if I'm remembering right, talked about. And is this volume helping profitability as we have seen it in the past? And secondly, regarding the announcements in the Chinese rail market of the recent weeks, it seems that the plans are there to boost the size of the networks quite extensively. So what is your judgment? Is that in favor of you? And if yes, how do you see the timing?

I'll start with the last question, the Chinese railway sector. I think I commented already a bit. And yes, we are following the announcement of the government closely. We're also very close to our customers. Not necessarily every time in the past when there was -- when there were those announcement, there was an immediate uptick of the market, but we have observed that sooner or later, the business will come. If now the Chinese government declares that the high-speed rail network but also the urban transportation is one of the focal areas to invest in critical infrastructure, this is definitely of importance to Huber+Suhner, and it's beneficial to our business in China. So if that business then also picks up in reality and the government walks the talks and releases those investments in reality, then, of course, this is positive for Huber+Suhner. The WDM, Cube Optics, technology, they have been market leader in the 100 gig transceiver market. So they supplied into 100 gigabit transceiver globally of transceiver manufacturers around the world. Also in China, this business has come down, as you know, and we have [indiscernible] from that, but also in the most difficult time Cube Optics was never challenged as they have still been contributing to our bottom line. And there was always a positive outlook for the future, on which we are working now. The business of Cube Optics with WDM is developed in 2 directions. We are on one side, working on complete active systems, where we are looking at the fiber scarcity on edge on the periphery of networks. And where we are boosting the capacity of fiber with active system on a link, let's say, to a macro side for 5G and back into the network or between data centers and the like. So that's one area, and that develops step by step. On the other side, we are working on designing for 400-gigabit and 200-gigabit transceivers, which are about to be completed. And then, of course, it depends how well our customers sell their transceiver in the market, but we foresee a decent cycle ahead of us with 200- and 400-gigabit transceivers that are based on Huber+Suhner WDMs.

So then if I got you right, the 100-gig transceivers are, let's say, restocking effect after there was quite an overstock. And then the other 2 segments add to it?

Yes. That's right. I mean, the 100-gigabit market is commodity right now, and will be -- will translate into a 200, 400-gigabit market. So we will foresee the peak demand going forward in the future, more on the 200 and 400. The 100-gigabit market for us is almost not existent anymore. It's a small -- it's a small fraction that is left.

[Operator Instructions] The next question is from Mark Diethelm from Vontobel.

I have a question regarding the second half margin outlook. The sales outlook for H2 is kind of the similar level to the second half of 2019. Yet, on an EBIT level, when I take the 6.7% margin for the full year kind of implies roughly 25% less EBIT compared to the second half of 2019. Is that to a large degree FX related? Or is there any large differences I don't see?

I mean, partly -- I mean, part will be definitely FX related. When -- let's say, when we keep the FX level as currently in the middle of August, I mean, you have seen compared to first half year, it's a 60 basis point. I think there will be some add-ons then for the second half of the year. But in general, it also has to do then with the mix in the second half year, and that's why we are saying it's a minimum 6.7%. So it can be also slightly higher. And at the end, it really depends on the mix because we have, let's say, in particular, in the industrial business, high-margin business when they have also some lower-margin business in some of the communication, but also there. It is in the communication. It's a mixed question. And at the end, I think, it's really the mix, which is relevant and also that we have, let's say, lower negative impact from the inventory, also, let's say, no unabsorbed cost from lockdowns, although now we have seen that the transportation cost going to a more normal level. So I think that's all impact, which, let's say, will then factor in the effective result of the second half. So I mean there are so many factors that's why you -- it's not only FX, but also...

Okay. I think there are no pending...

There are no more questions at this time.

There are no questions left. I would like to thank you very much for your questions, your participation and for following our company. And I would like to say you goodbye and hope to see you in person next time.