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

[Foreign Language] And welcome, ladies and gentlemen, to Huber+Suhner's Media and Analyst Conference on the full year results 2024. I give you in a first section, and overview of the business year 2024. And then our new CEO, (sic) [ CFO, ] Richard Hämmerli, who is today with us here will dig a bit deeper into the financial results of last year. If we look at the overall business figures, I think, from distance, everything is looking really good with plus in top and bottom line. Orders grew by 10.5% last year versus previous year. And in particular, in the very first month of the year, we were really able to get large orders in -- mainly in the Communications segment in Asia. That later on during the year has driven sales and we were able also to increase sales by 5%, organically by 6.4% in the previous year, already or by the 6 months results after the first semester, we were still clearly behind the previous year. So you can easily derive from that, that we had in '23, a first good half on sales and a very weak second half. While in the past year '24, it was exactly the opposite with strong order intake in the first half and then consequently sales growing in the second half of last year. Driven by the increased sales, we were also able to increase our operating margin by 60 basis points to now 9.7%. And we were quite happy and pleased to be able to stay within our long-term target range for the full year. And also we're able to announce that already at this occasion a year ago and then could stick to our guidance. I think, very few industrial companies were able to do that last year. We have to say that there were two halves, as I said, strong order intake in the first 6 and higher sales in the second. And we have seen in some markets, clearly that the situation has normalized. In particular, the overstocking, the word of the year '23, came to an end and in particular, in the industrial submarkets, we have seen that the inventory levels have gradually being consumed and came down to normalized level, which then has also given the opportunity for us to capture more orders again. What hasn't normalized is a situation with regards to the economic and geopolitical situation, but I will come to that in a bit more detail towards the end of our presentation today. When we look at EBIT on a 10-year history, during those 10 years, we have increased our target range twice in the year 2017 and in the year 2022. The present range is between 9% and 12%. And if you look back, there was just 1 year that we have not hit our target range that was the said year 2017. But since then, every year, even during the COVID phase, Huber+Suhner has been a very predictable and also resilient company delivering EBIT from 8.3% to 12.1%, which I would consider very solid performance. And also the year '24 after the dip in '23, return again to decent levels in the middle of our target range while we just made it within those 9% to 12% a year ago. A bit deeper look into the segments. The Industry segment had a good year, mainly in terms of order intake. Here, as I said, the business accelerated in the second half. And here, the order intake has clearly outperformed the sales, which resulted in a book-to-bill of 1.11. And the momentum continues. So we are here happy that we have a positive trend in the segment with the highest margins for Huber+Suhner. On sales, we were not quite able to close the gap. We run 3% short versus last year, but also here what I mentioned for the group, we have a different pattern in '23. We had a strong first half and the weak second half in that segment. And we started the year '24 with very little backlog and with little tailwind. So only the orders that came in during last year drove sales. And still at half year, you may remember we were clearly behind the previous year, and we were nearly able to close that gap towards the end of the year. And the operating result as a consequence also remained on a on a good level with the 17% and represent even a short -- a small increase versus previous year. The drivers here were broadly mainly on the order intake on sales. The main contribution came from A&D. While our subsegment HPC has seen a decline in sales mainly on the back of a very weak quarter intake in '23, but the trend in orders has already reversed towards the end of '24 and will hopefully remain positive. The Communication segment is the main driver for the growth last year and grew by 26% on sales and 21% on orders and also has delivered impressive improvement on the bottom line from 4.9% to 6.7% at half year to 8.1% at the full year, '24. So we have to note here that there were two main drivers. As already mentioned, in our half year conference. The first driver was the Asian mobile communication market, in particular, the Indian market where we were able to win a large 4G project and you hear correctly, and rightly, it was a 4G project. It was a government project, which provided access to rural areas for the people living there to access to e-government services in a more practical way. And Huber+Suhner has already won that project at the end of '23 and has then almost completed that project throughout the last year. They are the last deliveries still falling into the actual year, but that project will come to an end and has been at the forefront of growth in the Communication segment. The other driver for growth was the data center market, which picked up momentum again, mainly on the back of AI, data center and also our attempt to introduce our all optical switches into that submarket. The Transportation segment, which has enjoyed a good year in '23 has had to accept a setback on top and bottom line. So orders and sales came down by 7.6% versus a very solid and strong '23 and also EBIT declined from 9.1% to 7.3%. We report two subsegments under the Transportation segment, it's Railway and Automotive, while Railway proved to be stable, with some growth contribution from our rail communication growth initiative. The automotive market disappointed last year, and we don't see major signs of recovery towards the end of last year. And we believe that this market will be soft going forward with still potential long term, but more about that in the outlook. Needless to say that with 7.3% operating margin, this segment is below our mid- to long-term target for operating margins for the segment. This just wraps it up, while all three segments were on the same level in '23, we have seen a steep growth in the Communication segment was 26%, representing, now 40% of our turnover, while the Industry declined by 3% and Transportation by 8%. Still a very solid diversification. But with a bit higher share of the Communication segment, thanks to the success last year. Here, we mirror this development in the sales by region. And you can see that Asia-Pacific grew by 26%, and that has to do mainly with the Communication segment doing really well in that part of the world. While the Americas grew by 6% versus a very weak previous year, and EMEA came down by 5%. You should be aware that in '22, the U.S. was quite strong with nearly CHF 250 million. So the level that we have today, CHF 180 million represents clearly a lower level compared to the better years in Huber+Suhner's history. The split was 50% in EMEA and about 20% in U.S. and 30% in Asia. I would have considered a few weeks ago not very positive. I may come to a bit different conclusion from a risk point of view, the European share with 50% will probably prove to be a strong pillar going forward in the present uncertainties about tariffs and geopolitical tensions. Then a few highlights on the sustainability reporting, which is part of our annual report. We are transferring towards ESRS reporting, we are still not obliged to the size of Huber+Suhner but next year, we will comply fully with the ESRS standard. And a few highlights out of the present report is that we have just submitted new SBTi targets. They were also separately announced in a press and media release. They have been approved and they support our global transition plan towards net-zero. We have already had SBTi target submitted in 2017 on the basis of 2015 until 2025. So we are coming to an end of this first SBTi period. And on that track, we are doing really more than okay with, again, a strong contribution to CO2 emission reduction last year by 27% compared to previous year. Also, the resource efficiency has improved substantially with reduction of total waste by 10% and also the energy intensity down by 4.6%. The Scope 3 emission account for the lion's share of Huber+Suhner's emissions. So it's really key that we also focus on that. And we have set ourselves the target to bring more than 80% of our suppliers for direct production material on a platform where we do a comprehensive sustainability assessment in order to also track their emissions, and we have outbeaten that 80% target by quite a bit. And last but not least, an all-time low was achieved regarding lost time injury and also the lost hours in the production. And with that, I have concluded my overview of the business figures '24, and I would like to hand over to Richard, and he will guide you through the details of our financial results 2024.

Thank you very much, Urs. Good morning, ladies and gentlemen. Very warm welcome also from my side. My name is Richard Hämmerli. I'm the new CFO of Huber+Suhner , since 1st of January this year. I'm very happy to guide you now through the details of our results. As communicated by Urs, Huber+Suhner grow in order intake, 10.5%. I'm very pleased to see that the voice majority, even better, the organic growth was with 11.9%, while the other effects, currency & copper and portfolio were slightly negative. The main drivers were the Communication segment and the Industry segment, both grew double digit, while the Transportation segment on an organic basis had a slight decline. Similar picture on the sales side, the organic growth with 6.4% is even higher than the reported growth of 5%. Also here, the non-organic growth, currency & copper and portfolio had a slight negative effect. Main driver here, also Communication segment with the aforementioned project by Urs, in Asia with 29.4% and Industry and Transport had a slight decline on the sales. Now looking into the gross margin. Gross margin was at a stable level at 35.4%, this compares to 35.3% in the previous year. When we now look into the half year, as you can see here on this slide, you can see that the second half of '24, gross margin was slightly lower. This is due to the business mix. But we are on a stable level compared also with the previous years. Operating expenses increased from CHF 227 million in '23 to CHF 233 million in '24. Main increase comes from sales and marketing, and this is related to the volume, as we had higher volume in '24. Sales and marketing expenses grew from CHF 119 million to CHF 127 million. R&D on the other side with CHF 56 million and also the admin expenses with CHF 49 million remained flat. On the EBIT side, we achieved a higher EBIT. EBIT grew by 12% from CHF 77.6 million to CHF 86.6 million in '24, which results in an EBIT margin of 9.7%, an increase of 60 basis points. When we look into the segments, you can see Industry remains the key EBIT contributors for Huber+Suhner with CHF 47 million or an EBIT margin of 17%. Communication improved very strongly in terms of margin from 4.9% to 8.1%; and Transportation achieved an EBIT of CHF 19.1 million or CHF 7.3 million (sic) [ 7.3% ] EBIT margin. Also thanks to cost control, corporate costs were lower compared to 2023. Now looking into the financial results below the EBIT line. You can see here, we show quite an improvement. In '23, we had a financial result of minus CHF 2.9 million. Now we at CHF 0.8 million. How did this come about? You can see that the currency effects, mainly hedging costs remained on a similar level like in 2023. But what improved is the other financial results, and we had two drivers in there. On the one hand, we had higher interest on our cash deposits and the other effect was withholding taxes that we previously until '23 showed on this line are now shown on the tax line. Going further down in the income statement to the tax, Huber+Suhner achieved an effective tax rate of 15.7%, which, in my opinion, is still quite a good level. It increased compared to 2023 from 13.1%, mainly due to three drivers. The first one is the volume mix that we had, that we had more volume in higher tax counters. The second effect is the aforementioned withholding tax that is now shown here. And the third effect is the minimal taxation that had the first time effect now in 2024 on Huber+Suhner. In terms of investment, Huber+Suhner strongly also invested into innovation also in 2024, CHF 45 million. We put as investment which equates to 5% of sales, and this compares to CHF 36 million depreciation. So we invested more than we depreciated in order to have a good future potential and capture the potential that is out there in the market. The balance sheet of Huber+Suhner remains rock solid. The equity ratio is still at a very healthy 74% on the total volume. The balance sheet also grew last year by 14%, and this is mainly due to higher accounts receivable that you can find on the line of the current assets, but it's partially compensated also by higher payables, accounts payable that is under other liabilities line. Net liquidity is at a very healthy, CHF 184 million, again, an increase compared to previous year of CHF 163 million. Looking into the cash flow. Cash flow from operating activities were at CHF 19 million, deducting the invested cash flow, which is CHF 36.8 million, results in a free operating cash flow of CHF 53 million compared to CHF 63.7 million in 2023. We paid roughly CHF 31.4 million in dividend, and this results then in a free cash flow of CHF 19.9 million. Now looking at the capital efficiency. Also this indicator increased capital efficiency, return on invested capital increased to 16.8% compared to 15.8% a year ago, mainly driven by the net operating profit after tax, which was at CHF 73 million and also the average invested capital at CHF 434 million increased slightly compared to previous year. Now on the dividend side, I mentioned that our EBIT increased by 12%. Also, the dividend increases by 12% in 2024. The Board is proposing the general assembly a dividend of CHF 1.90 compared with CHF 1.70 a year ago. We maintain here our range for the payout ratio of 40% to 50%. Here, we are at the upper end with 49% on our payout ratio. In total, it's planned to be paid out CHF 35 million in dividends for the business year 2024. To sum it up, 2024 was a strong financial year. We had, on the one hand, the increase of the accounts receivable clearly. On the other hand, orders grew, primarily, organically double digit. We improved the EBIT margin. We had a higher capital efficiency, and last but not least for the shareholders also, we are able to increase our dividend. With that, I'm handing over to Urs.

Thank you Richard. So before we come to the Q&A, I'll try to give you a bit an outlook, and I will try to elaborate a bit on the trends and the developments in the different markets. Fundamentally, the trend in connectivity is still positive. And it's clearly an area or a business scope that we feel comfortable in. So there is no attempt and no strive to move our center of gravity away from the present field of activity. There are obviously against the fundamentally positive trends in connectivity, there are key risks to be managed. And I'm probably not the only one that presents year-end figures these days without highlighting the risks in the markets coming from the geopolitical tensions, but also from the unpredictability and the risks of trade wars that we have got already a bit an early taste. There is also, and I have to say that Huber+Suhner is a globalized company, and that comes with risks and opportunities. And the risks are obviously coming from the global value streams that also exist in Huber+Suhner and the opportunities they come along with a global structure that we are able to react in our structure and move value streams not overnight, but within reasonable short time around and away from countries where there may be trade barriers imposed. Our strategic focus is, as I said, remaining in the area of connectivity and the fundamental drivers that I have mentioned, they are the megatrends such as personal safety, seamless communication and environmental friendly mobility. I think the company has proven resilient in the past, thanks to a balanced diversification and divers, which was perceived quite often as a bit too broad, but I have to say that we feel quite comfortable with the three market segments, which give us really a business in different markets with completely different cycles. And in particular, we can also highlight, and I will come to that in all three segments, growth initiatives, which promise attractive growth also in quite difficult times as we have enjoyed last year. And last but not least, our business model is built on three pillars: innovation, customer proximity and also the operational excellence. And that gives us a certain position in the negotiation with customers so that not in all cases, we are obliged to swallow the tariffs to the full extent or to a partial extent, but we will be able to pass on some of those potential tariffs that will be imposed to our customers as we enjoy such a strong position in certain markets with our technology. And last, but very least -- not very least, we should also mention that where there is change, obviously, there are always risks, but there are also opportunities. And it's definitely not our strategy to complain about the risks, but address them properly and act, and then also to try to capture the opportunities that may arise out of these changes. We have started to give you a little bit further breakdown on our market segments as this was always a question. We don't give you full transparency on how much business we do in which application, but this should enable you to understand a bit better how Huber+Suhner is positioned. And if you take the 31% sales in the industrial or in the Industry segment last year, you can see that Aerospace and Defense accounted for 12%, unchanged versus previous year, which means if we take the 5% growth on the group top line that also, this Aerospace and Defense business grew approximately by those 5%. Within that bucket, we also report obviously three applications. So we have the Space Application there, we have the Defense application, and we have the Civil Aviation application. We do that for the simple reason that many of our customers here they have business in all three applications. And for us, it's very difficult to track whether a component or an assembly or a subsystem goes into a Civil or into a Defense application. This even more as we have nearly 100% of our business turnover in so-called dual-use goods, which can be used for either application. The other part of the industrial or the Industry segment is the subsegment or the bucket industrial. So our test and measurement market goes in here, but also the high power charging and all the rest like medical, energy and process industry, which has seen still a slight decrease last year, but with a positive trend in order intake. Communication grew from 1/3 to about 40% on the back of the growth in the mobile network, mainly with the Asian business. But also fixed network, where we report data center has grown last year, which represents about 17% of our total sales, while the mobile network is the largest bucket here with 23%. And the Transportation market is divided up, as I said already earlier, in Railway and Automotive. While Railway was stable on the Rolling Stock and growing on the Rail Comm application and has achieved 19% of our total sales. The Automotive business declined and came down from previous year 15% to now only 10%. We report two sub-applications here. It's the cable for electric vehicles, mainly on the commercial side and then also the sensors or antennas for radar applications that enable autonomous driving. Looking at the Industry segment in more detail, it's really about several interesting applications, which ask for high-tech products and which offer a high degree of differentiation, and that's also how the high margin in that segment is really explained. Connectivity quite often for our customers comes really very last and represents a relatively small portion of their business. So they rely on very competent companies. And here, we can definitely play on our strengths. The Test & Measurement market where we go into the test gears, but also where we supply test connections from the test equipment to the products is quite often linked to the Comms market, because the Comms market is one of the largest electronics markets and the electronics market is the driver behind the test and measurement market. And with the decline of the communication market, we have also seen a decline of our Test & Measurement business. This is a high end, high -- is highly differentiated application for us, which also provides really good margins and where we have a very long history and also a very strong brand name. We have seen that decline bottoming out. I think the worst is behind us, and we have from the equipment manufacturer slightly higher volumes in the forecast for this year. So we believe the Test & Measurement will reverse the trend and move back to modest growth. In addition to that, we have also developed an application, which is called Lab Automation. You must imagine that this test equipment is distributed quite often in the production of electronic equipment. And this doesn't make huge effectively of this very costly test equipment. This test boxes network analyzers and the like, they cost easily a few hundred thousand. And if you can use them better and utilize that expense is better in the production, more effectively by centralizing and then controlling remotely, that gives a big advantage to the customer. The only problem is that you test RF signals and the RF signal on long distance, that's a problem. So on the way between the production and the test equipment in such arrangement, you have to convert the signal from RF to analog optical. So from an RF signal to an optical signal. And then in order to use the test equipment and switch through the different test stations in your production, it is very advantageous to have all optical switch that is in the core of such a Lab Automation, being able to connect with all different test stations in your production, and that's the whole concept behind Lab Automation, which we have already mentioned quite several times in which we see now more and more interest in the market. The growth initiative here, A&D, I think it goes without saying we see rising defense budgets, but we have to explain that this is a long cyclical market. So if the budgets are discussed, it takes a while before they are approved. And when they are approved, then also, there is a time lag between approval and the decision on which systems and on which applications within defense, those budgets are being spent. And then when those allocations are made, then there is a specification, then there is a request for quotation and the different system suppliers they prepare. Then when one is chosen, you have quite often a lengthy phase where these products are being tested in the field, before then a ramp up and volume commitments are given to a component and subsystem supplier like Huber+Suhner. So even though we have rising defense budgets, I would not expect that business to skyrocket. But I expect that we have really a position where we can enjoy based on the recent budget decisions, where we can enjoy a long-term growth out of this market. As I said, it's not just the defense application that fall into that bucket, it's also the space application and here mainly commercial satellite applications that we have a major positioning and that form a part of that submarket for Huber+Suhner. Then the High Power Charging is an interesting market. It is a market that is developing, but it's developing actually not with the pace needed. So it's still a bottleneck and it's still a major precondition that electric vehicles can be charged within minutes on-the-go, before a large number of people is ready to change from a conventional car to an electric car. The same applies also for the commercial vehicles that we have a key role in. So High Power Charging is a fundamentally basic -- our fundamental basic infrastructure for electro-mobility on the road. Here, we have a very strong position. We are clearly the market leader for these high-power charging cables, and we discuss here 500 amps or higher, with the 1,000 volt that gives you 500-kilowatt of power that is transmitted by our basic solution. We are going towards higher -- towards higher power. We are even talking about megawatt charging for boats, ferries and trucks, but that's not mature from a market point of view, but Huber+Suhner would be ready. And in this market, we enjoy a very strong position. The U.S. is most advanced, but the market has come to a stop, due to discussion around connected standard. And the connector chosen in the U.S. is slightly different from the connector in Europe. In Europe, we have the CCS2, while in the U.S., we relied on CCS1, and that proved to be an interface which had certain disadvantages and which had certain failures in the field, which has caused the industry to reconsider the interface and the decision has been taken, mainly also by the support of the car manufacturers in the U.S. that have decided that they would like to go to the Tesla standard, which has caused a halt to the investment, which has caused also Huber+Suhner to review its product policy and develop an NACS interface, a Tesla interface, which is now readily available. And when this market is now coming back and there are substantial funds in the pipeline, then also Huber+Suhner will be ready with respective technology and designs. In Europe, it's progressing a bit smaller, but step by step. We see fast charges being installed. And also China is now coming also based on a different standard GPT, where also we try to play a certain role. And then last, we have these small niches on the general application. I don't go into the details, but it's still interesting high-tech niches for Huber+Suhner, where we have a highly differentiated offering such as medical for tumor ablation, but also energy application, that we support our process industry. In the Communication segment, we have four submarkets that we address differently. We have the component manufacturers, companies like Ericsson or Cisco and Samsung would fall into that category. Here, our main market is that we go into the equipment with RF connectors, board-to-board connectors. So from board-to-board, the connections in RF come from Huber+Suhner. And then the trend is also here going towards components that support much faster network speeds from 200 to 400 to 800 to 1,600 gigabit. And that requires transceivers. So the sending and receiving unit in the optical network that can support those faster speeds. And here, we play a key role with our optical filters from Cube Optics, this WDM technology, that is at the core of those fast transceivers. And we expect that business really to pick up as we have now for 2, 3 years really invested into designings into next-generation transceivers. Also in the Communication segment, we have the Fixed Access Network, and that's a constant build-out, because for every data traffic increase, the Fixed Net has to keep up. And that means also if we have more traffic going through the mobile network, at some point, it will end up in the backbone. And this is a constant development and an evolution of our Fixed Access Networks everywhere in the world, which is always billed on optical transmission or glass fiber product. And here, we play a key role. The Mobile Network, I have mentioned in the context of this 4G project in India. And we have completed in many countries, the 5G rollout, but that doesn't mean that the investments in those 5G networks, they stop. There is a constant evolution of those networks also within the 5G standard speeds are increasing, which requires, again, investments into the Mobile Network, which we are still enjoying. And then, we are also working towards the next jump in technology from 5G to 6G standard. And the leading companies among which Huber+Suhner plays a role, are developing and defining the standard for the 6G networks already. I expect first pilot installations towards the end of this decade and some first commercial rollout late -- late 20s or 2030 and onwards. And here, the Data Center is our growth initiative. I think I have already mentioned that in several instances, and I don't make it very long, but AI still plays a key role in the build-out and in the investments for data center, the computing power, which is required to run large AI data centers is high and also the Chinese approach doesn't play a major role here. The computing power is as good as the combined computing unit is working. And in this context, the optical connections are key and then also the way how these computing units are combined and integrated. And that's where we play with our all optical switches. And we are really working towards mass deployment in those data center architectures with our optical switches. A bit more nichey are these hollow-core fibers, which I have also mentioned in certain instances and on which we work with manufacturers of those hollow core fibers on the cable side, but then mainly also on the connector side. Here, the gating topic is really the capacity to produce those hollow core fibers. The advantages are huge, 50% higher speed of light in air compared to speed of light in glass. And the latency gain through hollow core fibers is paying off for the higher cost at this stage, but we don't get more fiber to the market as the process is still under development, and this is not easy to scale up. But all-in-all, I think, even though we have had a 4G project, at the basis of the success last year in the Comm segment, we have so many technologies which are really advanced and can play a key role in the business cases of our customers that we are quite convinced to be able to close that gap with other applications and high-technology products. And the Transportation segment, the rolling stock business stable or slightly growing. We have seen a dip during COVID. Nobody wanted to use public transportation for quite a while that has postponed and also delayed certain rolling stock programs. They are back and the market is doing fine. And we are clearly -- that the company to be when it comes to cabling for rolling stock and this on a global basis. The growth initiatives we have two here, used to be three, but now we have two. The electric vehicle has seen a difficult year last year. I mentioned that, and we don't expect that to change immediately. We have been extremely successful in the early phase of this EV commercial market. And we were able to design in our high-voltage cable with all key truck and bus manufacturers on these Gen 2 platforms. You have to imagine that in the first instance, they did proof-of-concept based on existing vehicles, they took the diesel engine and put electric drive and the battery and that was the e-truck. In the next stage, the OEMs have started to develop real e-truck platforms from scratch, the so-called Generation 2. And they are now available. It just has to be said that the drop of the year 2024 is a e-truck from Daimler, eActros. And hence, I think the market is ready, and we hear from companies that run both combustion engine-driven trucks, diesel trucks and electric trucks that when the charging problem is solved, and they can do that overnight on their docks or in their parking yard. Then they can be operated commercially at least as advantages as the diesel trucks. But it takes a while for people to realize that and for people really to be brave enough to change to electric trucks. Independently, the industry is working already on the next Generation, Gen 3, and that doesn't help Gen 2 to break through, because it's expected that again, with this young technology, the improvements from one generation to the next is quite substantial in terms of cost, but also in terms of reach, Gen 3 will again be a different league. Huber+Suhner is trying to repeat the success of designing that we have managed on Gen 2, also with Gen 3, and we are very well positioned. And we have, in our planning, not huge growth for 2025. We don't believe that the pattern in the market will change so quickly. But mid to long term and latest 2026, we still believe in that growth initiative. And with the success on the designing side, we will, for sure, see volumes growing in that market, as e-trucks and e-buses become more popular in the market. So we believe in that market. We don't expect a turnaround quickly. But mid to long term, we see still very attractive growth in the area of electric commercial vehicles. An area where we already enjoy a very dynamic market environment is the rail communication application that's at the crossroad of rolling stock and communications. So it's the system in the train that communicates with the track side and then also the system which provides access for the passengers to stable and fast Internet. And here, we have been able to announce last year the large contract with Deutsche Bahn, not on components, but on systems. And we have more projects that we are currently working on in this market that will be decided this year. So we believe the fundamental drivers in this market and also the position of Huber+Suhner is strong. Then we have the ADAS, the advanced driver assistance system, which was considered a growth initiative, it was downgraded due to the fact that we don't believe to reach the CHF 100 million within the targeted time frame, but we believe in that business, and we have our design-ins. It's just so that the contract which we have won, the volumes have been reduced in certain cases, and that has caused us to downgrade it. We still pursue that business. We are still invested in that business, and we have still new opportunities that we work on and which will also help to compensate for the commit on the volumes of the existing contracts. We believe that this autonomous driving remains a key trend, although it doesn't happen so fast. I was also too optimistic a few years ago, when I said in 2025, I will come to this press conference in an autonomous car. But fact is that it's progressing and that also the regulatory side is moving forward. And we will see -- I don't give you a time, but we will see in the future autonomous cars on our road. In certain cities, it's already the state-of-the-art. And if you call a taxi, you will be picked up by a car without a driver. Yes. That almost closes my outlook and my deep dive into the market. I hope I was able to give you a bit of details on the markets we work on. I think, as I said, fundamentally, we are in very attractive markets. And in particular, the growth initiatives, maybe with the exception of EV, should according to our plan, continue to grow in '25. But we still provide the market with a relatively cautious outlook. Please keep in mind that apart from the very positive drivers. We have a few uncertainties in the market, which doesn't make it easy to be very enthusiastic or very optimistic. We have to replace a large Indian project and close that gap, and we don't expect the EV commercial market to come back already in '25. And with those three factors, we provide you with net sales guidance for '25, where we expect to have net sales on the level of '24. And as far as EBIT guidance is concerned, we stick to the target range of 9% to 12%, which is also confirmed as our midterm target, so no change on that level. And as always, in that place, disclaimer, this assumes that there are not key influencing factors turning tremendously negative, such as inflation, exchange rate, political tensions and other risks. This was my outlook for 2025, certainly, room for speculation for optimism. There are plenty of upsides, but also plenty of risks. And it's a very volatile environment we are working in. It requires highest agility and a fully determined management and staff and we have certainly all hands on deck in this turbulent times. Thank you very much. I close with the financial calendar. We will be, again, on stage then in a fully online webcast on 19th of August with our half year results '25, and we will certainly have an update about the outlook by then.

Questions. I think, as always, we take the questions first from the people in the room, and then we have also the opportunity for the people in the webcast to ask questions.

Two questions, please. First, to you, Mr. Ryffel. Can you update us with the progress that you've made with your innovation technologies, the optical -- all optical switches as well as the hollow core fiber? And where do the projects with your development partners stand? How close are you to a potential breakthrough in particularly in the data center business and how long will it take if there's an order coming until this will be reflected in your P&L? And the second question is more probably to Mr. Hämmerli. For several years, the company is now coming along with an every year, increasing net cash position, which appears a bit oversized and I wonder if it wasn't a good idea to increase the payout ratio and return a bit more to the shareholders. I don't think it would impair your business opportunity.

Thank you Mr. Lars for these two questions. So innovation first. So first, I have to say, we have obviously those high-impact innovation projects. There is a lot of innovation going on. And again, we spent last year between 6% and 7% of our sales in R&D. So the projects that you have particularly mentioned hollow core fiber and all optical switches into data centers, they are progressing. And we see already first business on both the impact of the optical switches could be higher in '25. So here, we work with one key operator of data center of a so-called Hyperscaler in a very close collaboration. And we are developing our platform to their needs. There was a little bit a change on the way, which has caused a bit of a delay, but we are working towards general acceptance of this slightly modified, specified switch. And that should happen if everything runs according to plan in the first half year. Based on that, we would ask for volume commitments. And based on the volume commitments, we will release also investments in the production to be able to ramp up. And if everything works well, we have just invested proactively into a new location in Poland into a new plant, which will be ready these days to move in, which is also a precondition to be able to deal with the higher volume. If all that is fulfilled, then we will see volumes picking up in the second half. So if we are on track, if things go as planned, then we will see volumes picking up. And as you know, these days a lot can still happen. So we are obviously working very hard on that opportunity and withdrawing what we have and that's a lot. Hollow core fiber, I think I touched upon, here really the gating topic is the production of these fibers, and we have here enough hands on deck and capacity to do whatever is needed. I expect a single million sales contribution out of that. So that's not going to be a game changer, but it's an attractive new things. Allow me to answer the question about the cash as it also has a bit of a history. So yes, our cash position is strong. I think particularly in turbulent times, we are happy that we have a strong balance sheet. Whether it has to be as strong as the one that we presently have, that's debatable. I mean, we have now also intensified our efforts in identify in a very strategic attempt, M&A targets. And that is running, and that would easily consume, depending on the size of the acquisition, a large portion of our cash. On the other side, if we cannot use the cash for M&A or our organic development, then obviously, there, at some point, we will discuss also ideas with the Board of Directors. It could be, again, a share buyback, as we have already done once or it could also be a super dividend. But that's certainly not at the forefront of our strategic intent. And we have [indiscernible].

I would like to follow up on M&A. Could this really be now a time maybe to do an acquisition, especially in Defense, where they obviously are a lot of opportunities now or valuations, maybe they are already too high? That would interest me if you are looking at targets there, maybe -- and could you also explain us a bit why are margins in Industrial -- in the Industrial division so high? I mean do you have to just enjoy much more pricing power there than in other divisions? And then maybe two more questions, but maybe you could also provide us a view a bit on the U.S. I've heard a bit all of a sudden now CEOs come out and say, well, good that we have a lot of European business and U.S. anyway, that the revenue there has come down. So are you concerned maybe about the path of the U.S. is now, has chosen? Very last question, maybe in fast charging, there, I mean, we saw a competitor of yours broke cable doing -- had to announce some restructuring recently. Are you also suffering there?

Yes. So four questions, let me be relatively short. So we allow other people to ask their questions. M&A, we have identified nine target fields. I don't disclose which ones, A&D could play a role among those nine fields, but we also should be aware that currently, the multiples in the A&D area are inflated. So we will certainly, carefully observed valuations in the different target fields. But you can be sure that if we have a strategic approach, it's around our growth initiatives but not only. The second, the Industry margins. So let me explain that very briefly. So in Communication, connectivity is a key commodity it enables communication. So on networks that are built of connections, the data is transmitted. And if for an Industry component or a technology play such a vital role, it's in the center of innovation, but also in the center of purchasing. And in particular, the technology in Comm connectivity has gone better than needed. So we can do more than the networks need today. And that's why in a large part of communication network, you have price pressure, because what is required it has to be good enough and not the best possible. That's why in Comm, we focus not only on those products, but also on higher differentiated technologies, and I think I've mentioned them. In the Industry, the value of the connectivity is of minor importance. It still is key that the application can do its -- can fulfill its purpose. And quite often, it is not as good as needed, but as good as possible. So if you take a Test & Measurement application, you can only test what your test connection allows to get through. And you can -- the sky is the limit. And that's where Huber+Suhner is really good. So we can throw in our strengths and our advantages and achieve on that basis also higher margins. Then we have the U.S., Europe, no, I'm not happy about the 50% in Europe and the U.S. plays a key role in our strategy. And I believe it's an important market for Huber+Suhner, where we can also offer a lot, and we will certainly not rest and accept the situation, we will try to do more, and there are opportunities, as I said, and we will try to capture that. But it's a fact that there is 50% in Europe, at least, it's that part of the business where we do not have to worry too much about changing boundary conditions. And I don't want to have that understood that we defocus from neither Asia nor the U.S. And then HPC, to your last question, no, we don't fear that we will have to lay off people. Actually, it's the opposite. We have so many ideas and initiatives running that we could need more people in this field. But the market requests those changes very fast. So we are very close, not just to the charging point manufacturer, but also to the charging point operators because those are the ones that operate those charging points in the field, and that's where we get the feedback closed. And based on their feedback, we improve our product, and we have aligned road maps. And as I say, more work than hands and brains. And so I'm positive about that. And it's obviously always dangerous, like in Formula 1, if you have a safety car phase and you are held back the lead that you had disappears, the orders close up. But I think we have used that phase to get new tires and more power, and we will be coming back even stronger. Amayo from [indiscernible].

Also about the U.S., how -- can you a bit explain your position there and how the -- how many products are imported to the U.S. market? How much are assembled there and ...

I don't want to give all the details. I think that would go too far, but you can take the CHF 180 million sales, and you can cut that roughly in half. That's about what we import into the U.S. And from that half, we also have to differentiate into products where we are confident that we can pass on any tariffs. And not all the half that we import will also be subject to tariffs as long as some countries are not subject to that. So at the end of the day, there is a risk for Huber+Suhner like for all other global companies. I can see that the risk significant, but not to the extent that it would endanger Huber+Suhner's business model. And we are obviously not just since a few weeks working on mitigating the impact. First of all, we have this globalized structure, and we can move around value stream, and we are also working on qualifying more U.S. suppliers in parallel to be able to shift volumes and by that, avoid the tariffs. So I can't give you an answer in million Swiss francs. It is there, but it it's managed and the longer it takes, the battery will be prepared.

[indiscernible] Asset Management. On Aerospace and Defense, it seems that into 2025, particularly the defense part to significantly accelerate looking at all the spending and budgets in Europe and elsewhere. Can you give us a bit of a flavor of this, there are you in. So if GI metal sells a new tank, do they have a full package of communication components and so forth. Could you just give a bit of flavor of our positioning, what you expect?

So I can't give you the details of the customers and the customer list. You can be sure that we are known and engaged, and we have business with all large defense companies, be it in Europe or be it in the U.S. With the business growing, as I said, we would expect certain things to arrive at Huber+Suhner already this year, and we are confident that we can stay on the growth path with our A&D business, but we don't expect that business now to skyrocket for the simple reason that the budgets which are now approved, it will take years to arrive at our end. I have to imagine that before we see volumes, it's a few years. But it's -- this trend has not just started this year. There have been increases in the past on the back of the Ukraine war. And also other conflicts, and we believe that, that will have already a certain impact. But I would also confirm that the mid- to long-term outlook for Huber+Suhner in this business, is positive. We have a very strong position as far as RF technology is concerned in A&D. And we have an attempt to leverage our market access also into the area of our copper product or fiber optic products and move from a component more to a subsystem supplier and that bears additional potential as we can climb up in the value chain and leverage our market access. Charlie Fehrenbach from AWP.

You have to replace this large order in India Communication segment. Is it the assumption correct that you probably will lose sales in this segment in '25 compared to '24?

I think, the assumption is positive. I mean, it could happen, yes, because it's a big project, and if we are not able to compensate the full chunk, then we will see the Communication segment shrinking slightly. It's certainly one of the factors that I have mentioned, why we don't dare to promise growth in 2025. If everything goes well, it could be that the Communications segment stays on the level at least of last year. That will be the case if we are able to win follow-on orders in India and also grow the data center business substantially. Those two factors have to materialize and then we can stay on '24 level. But I don't dare to promise that at this stage as it's still open. I think that takes care of the question from the audience, in the room. So I'll let us move on to questions from people in the webcast.

I don't think we have any questions in the webcast, but in the chat. So let me start. There's also India. Again, a follow-on question. Will there still be volumes from the Indian project this year? And what does it mean for the second half?

Answer is yes. Hopefully and hopefully, we will be able to take that volume.

Again, on India, what's the general outlook? What does that mean for our -- for Huber+Suhner's footprint in expansion in India and Asia? What's the outlook there?

Yes. I think in general, we can say that -- we have two very strong organizations in Asia, one in India and one in China, and we see tendencies in both countries that the market goes local for local. So the location in China is less and less of a global manufacturing plant, but then it's becoming really a self-sufficient center for serving the local markets, and we're in the middle of that transition. In India, we have also a very competent team. And I mean, here, we have a base structure with a few hundred people. And then, if we have those large projects in India, we have nothing or large. That's a bit the name of the game there. We work very much with contractors, and that allows us to be really flexible in cost and structure and to breathe and to be able to cope with these fluctuations in volume. But overall, the knowledge and the core, it's in the few hundred people that we have. And around that, I'm sure we will develop a strong and sustainable business in India.

The next question is about A&D again. I think you already elaborated a little bit, but could you summarize the strategy and the business chances in this segment?

Yes, I have to repeat myself. So A&D, we are a long-term player. We have a very strong brand and reputation of high performance product and quality. So that comes mainly from our legacy in the RF. RF plays still a key role in our strategy, but we are on the back of those larger volumes. We are trying to expand, but also not just volume-wise, but also by scaling and leveraging our market access and developing solutions which comprise of all three technologies, RF, copper and the fiber.

Another question on our strategic growth initiatives. Sort of, if you could summarize how much they -- in terms of revenue or sales they account for the growth initiatives?

Yes. The range of 30%.

And there's one last question here in the chat. What is the percentage of group revenues generated in Germany, if we can specify.

No, we don't specify, but we have -- usually, Germany is always among the top 3 countries. And we have -- in the past, we used to have in the top 3 always Germany, U.S. and China. And the India makes it from time to time into those top 3, so it becomes top 4. And then, we have business in more than 65 countries. We have a very long tail end with strong business in other significant economies of the world, such as Australia, England, Switzerland, Korea, Spain, Italy, France, that's all.

That question actually included two more questions, apologies. So on the mobile network end market, how does the pipeline for bigger 4G or 5G rollout look today in the different regions, if you can speak about that.

Yes, I think the big rollout on 5G, they are over in the U.S., they are now trying to get the cash back in Europe, they have started earlier and they complete later. There is still something to be done. And in some countries like emerging countries or other countries there, there are still 4G rollout. As you may have noticed, and 5G is also taking place. So it's a constant -- it's a constant build-out that takes place.

And potentially to Richard, what is the reason for the change in trade receivables seen in the cash flow statement?

Well, this goes back again to the large projects that we had in India. As you can see, we reported high order intake on this India project in the half -- first half year, we reported sales in the second half year, mainly. And then obviously, by year-end, the trade receivables with India were still there. And this explains the increase year-over-year. But the positive message, we have already received a large portion of these receivables now in the first couple of weeks of this year.

And I think India is, again, is of a big interest. So just to repeat how are you planning to replace the Indian project? And what does that mean for this year and beyond?

Yes. I think, as I said, the Indian market offers great potential in a broad range of applications, and we are focusing on the most attractive. And there is also an opportunity that the same program runs a bit longer and is being extended, and we are trying to win that part as well, and that would allow us to have a bit of softer landing in India. And obviously, we have a lot of other growth opportunities in the area of communication. And it's our strategy that they should grow and contribute to closing the gap in India. We have again Charlie Fehrenbach from AWP.

Can you tell us how the first 2 months, January and February were compared to '24 in sales? Comparables flat...

Yes, that goes into too many details, but obviously, it's worked into the outlook. So the start was okay. And that has also influenced our outlook. And we are just closing February, now the books. And so it's really early.

Okay. We have a persistent question about India. So for the first half of 2025, what does that specifically mean to replace it and how it's going to sort of the tail end of the project? Can we describe that?

We will report on that on 19th of August, obviously. And I mean, we will then certainly disclose a bit more detail how India has developed and how the project has impacted the different semesters of Huber+Suhner. Okay. I think, there are no further questions. So I would like to thank you again very much for attending, be it in person here in the room or in the webcast. And thank you for the interest in Huber+Suhner. We will see each other again in the summer and hopefully in between. Thank you very much. And yes, wish you a good resilience in these turbulent times.