Ladies and gentlemen, welcome to the Gurit half year 2024 results Conference Call and live webcast. I am Sandra, the Chorus Call operator. Kindly be aware that all participants will be set in listen-only mode, and the conference will be recorded. Right after the presentation, there will be a Q&A session where questions can be asked. To take part in the Q&A session, please use the telephone and press star and one. The dial-in numbers are available in the invitation. For operator assistance, please press star and zero. Note that the conference must not be recorded for publication or broadcast. At this time, I'm pleased to hand over to Mr. Mitja Schulz, the CEO of the Gurit Group. Please go ahead, sir.
Thank you very much, and good morning. I welcome you to the presentation of our half year twenty-four results. I'm here in Gurit's corporate office in Zurich, together with my colleague, Javier Perez, CFO. Let's start and have a look at today's agenda. I will start the presentation by providing you a business update, highlighting the key events and achievements of the first half year. Javier will provide details on the financial performance before I spend a bit more time explaining our view on the markets and our full year outlook. Following the presentation, we have scheduled the Q&A session. So let's start with an initial look at the key financials of the first half of twenty-four.
After a slow start in the year, impacting sales of all business units, we experienced a stronger Q2, driven by ramp-ups of new wind blades and higher demands in the non-wind markets. This resulted in the first half net sales of 213.5 million CHF, yielding an adjusted operating profit margin of 5.4%. We were able to decrease our net debt from 78 million CHF in the previous year period to 63.4 million CHF. Javier Perez will provide more details on the financial performance in his part of the presentation. So let's continue with the highlight of the first half. We start with the wind markets, where we saw some encouraging developments. Strong permitting and auction improvements in the European Union and the renewed interest in onshore wind in the U.K.
The Inflation Reduction Act impacted the restart of numerous wind production sites in the U.S. China wind installations stay at good levels, and very important for Gurit, our structural profiles business is on track to deliver the targeted break-even performance this year. Still, we have seen headwinds approaching the industry and impacting our wind business.
Western wind customers reduced and even stopped activities to fix quality issues and deplete inventories. Some adjusted manufacturing capacities and initiated major restructuring. Delayed rollout of new turbine platforms and extended lifespan of existing ones, which reduces the demand for wind blade, tooling, and molds, and overcapacities in China drive price pressure on turbines, components, and materials, so short term, the wind business environment remains dynamic and volatile. Continuing with our non-wind business, the year started with low sales impacting Q1, and since then, the marine markets have stabilized and are performing as anticipated.
The industrial markets continue to present numerous opportunities, and our activities remained on track. I will show you some of those examples in the next slides. Lastly, we transformed our site in Magog, Canada, to purely cater the marine business and successfully integrated the newly acquired FX Composites business in the U.S. Let me show you some examples highlighting our first half year activities. In wind, strategically highly important, one of our major Western wind customer awarded us with the first mold for their newest offshore turbine blade. A very important step, considering future projects to come, and a great opportunity for us to demonstrate our technical capabilities. In India, our investment in a dedicated wind tooling plant start to pay off. We manufacture the first molds for two major Indian customers already and continue expanding customer reach in the second half of this year.
Besides winning multiple new marine projects across the world and supporting established customers in successfully scaling their businesses, we are immensely proud of our composite engineering teams driving water sports athletes towards success. Our Auckland-based engineers closely worked with the New Zealand Olympic rowing team, which resulted in a silver medal for Olympian Emma Twigg.
Great Gurit engineering work, and congrats to Team New Zealand. In the business for energy efficiency applications, we successfully managed the market entry for recyclable PET panels, both in the transportation and building and construction industry segments. Our customer in the truck is using our recyclable PET in trailer floors, where they help to improve durability, isolation performance, and reduce the weight of the vehicle, reducing fuel consumption. Another example is our customer, Outbound, which is offering mobile homes in the U.S. Improved isolation performance and recyclability were key arguments for our PET panel solutions.
In both examples, our customers replaced conventional materials with Gurit's recycled PET, because of the superior material properties, which supported their individual energy efficiency ambitions. Both examples provide credibility of the growth potential of PET in multiple industrial applications, and we are very happy that we successfully made the first step in those segments. Some updates on our Structural Profiles business. I already informed that the business is on track to deliver the targeted break-even performance this year. To further increase the competitiveness of our Structural Profiles business unit, and as an important step towards future profitability of the business, we have decided to relocate the manufacturing of glass and carbon fiber pultruded profiles from Middelfart in Denmark to India and China.
We expect the relocation to be finalized by July 2025, and to incur total impairment charges, restructuring and relocation expenses in the amount of approximately CHF 10 million, primarily in the second half of 2024. With this, I conclude the business update and hand over to Javier and the half year financials.
Thank you, Mitja. Good morning, everybody, and well, warm welcome also from my side. In total, we posted net sales of CHF 213 million in the first half of 2024. At constant exchange rates, this is still a reduction of 8.8% compared to the prior year period. In Swiss francs, the reduction is even 12.8%. At CHF 113 million, the Q2 was significantly stronger than the Q1 of 2024, with net sales of CHF 97 million. Overall, call offs from our wind customers were in line with our expectations. In spite of the higher sales in Q2, we have not seen a significant increase in demand from our western wind customers, even though the long-term forecasts are encouraging.
We are pursuing a selective approach with Chinese customers due to local overcapacity and lower price levels. In the first half of the year, we were able to increase sales of structural profiles, formerly Fiberline, after a very weak start last year with low volumes in India. As a result, still net sales of wind materials reduced in the first half of 2024 by 7.6% at constant rates to CHF 141 million. In Manufacturing Solutions, we have been seeing a delay in multiple customer projects, leading to a lower number of delivered molds. With net sales of CHF 21 million, the decline was 27% year over year. Currently, we are fully loaded and expect a recovery in the second half of the year.
The higher margin marine and industrial business remained stable year over year, with 51 million CHF. Looking at the regional sales, sales in Europe and North America reduced, while our sales in Asia, in particular China, increased slightly year over year. Looking at the results, thanks to an improved improvement of our Structural Profiles business in the first half of 2024, our gross profit improved by 0.7 percentage points to 17.8%. We did achieve a break-even result in Structural Profiles while experiencing losses in 2023. Its gross profit improved by 10.8 percentage points. Main reason being the successful ramp-up in India since the second half of 2023. On the other side, as mentioned, Manufacturing Solutions did have lower sales and therefore also lower gross profit by five percentage points.
In 2024, we did report restructuring expenses amounting to CHF 1.7 million in the first half. The 1.7 million relate to a relocation of the production of our core kitting location in Suzhou, China, and also included some smaller adjustments in Matamoros, Mexico and Middelfart, Denmark. As a result, our adjusted operating profit amounted to CHF 11.6 million, or 5.4% of net sales. In the Q2 of 2024, we were able to achieve an adjusted operating profit margin of 8.5% after a weak start into 2024. Higher sales in the Q2 were the main reason for this improvement. The EBITDA was stable at 8.4-8.1%, including restructuring expenses.
As outlined, our board of directors decided last Thursday, the relocation of the production of structural profiles from Middelfart, Denmark to Chennai, India and Tianjin, China, respectively. The relocation comes with a one-time restructuring expenses of CHF 10 million, which we will book in the second half of 2024, and impact our operating profit and net result accordingly. The cash impact in 2024 is minor, with below CHF 1 million. Overall, we expect CHF 6 million cash out related to this restructuring. Existing production experience with pultrusion in India and China make us confident to further improve the restructured Structural Profiles business in the future. Looking at the half-year bridge for the adjusted operating profit, the biggest impact is related to a lower net sales, amounting to -CHF 3.6 million.
The overall sales price and material price evolution supported an improvement of CHF 1.2 million. However, this includes price reduction of CHF 7.8 million, that were covered by raw material price reduction and lower material usage, amounting to overall CHF 9.3 million. The exchange rate impact on the adjusted operating profit amounted to minus CHF 0.3 million. Overall, in Swiss francs, the operating profit before one-offs, reduced by minus CHF 2 million. The trade net working capital includes our inventory receivables and also payables. Overall, the net working capital, as average over the last twelve months, remains well managed and reduced to 20.1% of net sales. In Swiss francs, the overall net working capital amounts to CHF 86 million.
The investments of CHF 5.2 million in the first half of 2024 mainly went into continuous improvement measures of our PET production. CapEx remains stable at 2%-3% of our net sales. The free cash flow was just slightly positive. A part of having a good adjusted operating profit margin, unfavorable tax, and also financial result impacted the net result and free cash flow accordingly. In the first half year, 2024, a free cash flow of just CHF 1 million was generated, and the financial result includes interest expenses of CHF 3.4 million and exchange rate losses of CHF 3.2 million. Looking at the balance sheet, the net debt as it slightly increased compared to the year-end to CHF 63.4 million, being much better though, compared to the end of the first half, 2023.
Compared to the year-end 2023, the equity ratio decreased to 26.2%. Equity was at CHF 83 million, being CHF 4.2 million higher, though. The higher balance sheet total caused a lower ratio. Compared to the end of June 2023, the equity mainly declined due to the acquisition of 40% of Fiberline. The impact from the goodwill was CHF 26.1 million at that time. Gross profit to EBITDA reached 2.5 times, and all bank covenants have been met at half year 2024. We do not expect a major impact on the debt situation resulting from the relocation of the production in Middelfart, Denmark, to Chennai and Tianjin. With this summary, I hand over to Mitja.
Thank you, Javier. I will share our take on the wind market, and as usual, we are referencing to the Brinckmann market outlook. Starting with the key message, the expected growth in wind will kick in later and substantially not before 2026, 2027, driven by EMEA and North America. Global offshore installations are expected to double in 2027 versus last year's level.
Going a bit more into details, we see short-term market outlook foresees a flattish development in all major wind markets, except EMEA onshore, where installations grow, driven by stronger permitting, in particular in Germany. Despite all activities and positive vibes related to the IRA subsidies, North American onshore is not growing substantially before 2027. In offshore, we expect delays related to slow permitting, high interest rates, jeopardizing project profitability, and challenges related to the manufacturing complexity and supply chain readiness.
For China, the biggest wind market of the world, onshore wind is expected to remain flat in the next years, which will drive further competition along the wind value chain due to Chinese overcapacities. China offshore will only grow from 2027. To summarize our view, wind will grow, but later, and offshore to a lesser extent than originally anticipated. Let's change gears and have a look at the marine and industrial market segments. In the short term, we expect the marine business to continue its modest growth trajectory. Midterm, the market is expected to grow on mid-single digit CAGR levels. In the industrial segments, we are confident that growth will accelerate, driven by the increasing demand for recycled PET foam.
As I elaborated already, we see what we call energy-efficient applications business as an additional future strategic growth driver for our company, and we reiterate our expectations to double PET sales outside of marine in the next three to four years. That brings me to the conclusion of today's presentation. Summarizing H1, the year 2024 started slow, and Q2 was within expectations. We anticipate slightly stronger sales in the second half versus the first half, if demands from wind customers and projects materialize as foreseen. Wind markets grow short-term slower than projected, and the business environment remains dynamic and volatile. Mid-term, installations expected to grow substantially in the U.S. and in EMEA. Chinese competition is increasing, driven by overcapacities and low domestic China growth in the next few years.
Our structural profiles business is on track to deliver the targeted break-even performance, and as highlighted, we initiated the next steps towards profitability by relocating all manufacturing to our sites in Asia. The marine markets resumed their growth, and industrial markets continue to offer multiple opportunities, overall performing as expected. We reduced our net debt, and we will continue keeping the focus on cash management and operational execution. For the full year outlook, we now expect net sales at the lower end of our guidance, and we confirm the adjusted operating profit margin guidance of 5%-8% for the full year. Gurit maintains a strong market-leading position with Western wind customers, and we will continue to adapt our global footprint and capacities to the market needs, keeping our advantageous position in the wind supply chain.
The marine and industrial business will become increasingly strategic for Gurit's future growth, driven by our strong marine position and energy efficiency ambitions across multiple industry segments. This ends our presentation. Thank you very much for joining us today, and with this, I'm handing over to the operator for the Q&A session.
We will now begin the question and answer session. Participants can now ask a question by pressing star and one on the touch-tone telephone. Questioners are requested to use handsets only and turn down the volume of the webcast. If you wish to remove yourself from the question queue, you may press star and two. We will now start the question and answer session with the first question from Jörn Iffert from UBS. Please go ahead.
Good morning. Thanks for taking my questions. It would be three to four, if it's okay, and I would take them one by one. The first one is, please, it seems that some Western wind park operators start to buy turbines from China, which seems to be a kind of new event. What are the implications for your supply chain? How do you see this? I mean, you mentioned rising competition from China coming up due to the overcapacities, but what is roughly the potential financial impact you are seeing for the next two to three years for Gurit?
Yeah. Morning, Jörn. Let me take that. I mean, to be precise, in the next two to three years, we do not see a major impact on that because we do not expect, looking at the amount of projects which had been communicated and the timeline associated to those projects, that this will have, let's say, short to mid-term, a massive impact in terms of total share of installations in Europe. But what we would expect is when volumes remain lower, meaning this is a, I'm just saying, a handful of projects, then I would expect that those supply chains will primarily be in China. Meaning that Mingyang, in this case, would build most of the turbine in China, which would also mean that this would primarily be domestic Chinese business.
Once those projects scale, we would anticipate that the Chinese wind turbine manufacturer will establish a European-based supply chain or higher share of a European-based supply chain, and with this, consequently, also look for local or European sources in this case, which means there should be a fair share for Gurit to participate on these projects as well. But again, on the timeline, I would expect this is not going to happen before yeah, three, four years out, in my view.
Okay, thanks for this. And the second question, please, on the ten million restructuring cost. You were mentioning, linked to Fiberline. What are the underlying cost savings? What is the cost-saving run rate for this ten million one-off costs, you are guiding? Is it two, three million higher, EBIT, than from two thousand and twenty-six onwards or even higher? How should we think about this?
Let's say, normally we do not outline those savings, but they are, they are significantly higher than the CHF 2.2 million-CHF 3 million. As mentioned already, the ramp-up of the Structural Profiles business in India last year helped us to generate break-even this year after loss-making in 2023, so we expect significant savings from that, and also as we do that pultrusion business already in India and China, we expect a significant improvement starting 2025.
All right, thanks and the last question, if I may, the receivables, I think, were also going up quite sharply. Do customers ask for longer payment lines, or how should we think about this? What's the read-through?
No. No, I think this is the normal flow of the business compared to year-end. I agree, compared to the half year last year, I think we are actually just as at the same amount. So no, there's obviously there is a pressure to increase payment terms from the customers, but we did not have seen a big move or an additional move towards longer terms, no.
... Okay, thank you very much. I go back in the queue.
Thank you. And-
The next question comes from Christoph Grau from AWP. Please go ahead.
Hello, thank you for taking my question, and I just want to get back to the facility in Denmark you just closed. Are further restructuring measures planned, maybe, in other factories that you operate? And can you maybe give me some more reasons why you've closed this factory there? Is this only because of cost optimization reasons? Maybe can you outline it a bit, a little bit more? Thank you very much.
Sure. Good morning. So let's start with the second part of the question. I mean, as Javier just outlined, I mean, I think it's an unfortunate truth that manufacturing business at high Western labor rates and wage rates is very difficult to do in a profitable way. So we clearly saw a need to become more competitive by improving our cost position, by relocating, and in this case, leveraging lower location costs in India and China versus, I would say, relatively high location costs in Denmark, and this was basically the major reason for the relocation from Denmark into India and China.
I want to say that we keep engineering and customer-facing functions in Denmark to maintain our position towards those customers, obviously, but manufacturing will fully go to Asia. And to answer your second question, I mean, as I said, and as you have also seen in the last years, I mean, we are continuously challenging our plans. We are continuously challenging our footprint. We are continuously monitoring what our customers are doing in terms of where they set up new manufacturing plants, or where do they relocate plants, potentially impacting the supply chain and consequently also potentially impacting our own footprint. So this is a continuous process, and there's nothing concrete planned right now. Obviously, we are always considering what to do next, where to build a new plant or where to change our current footprint. This is, I would say, normal behavior, normal proceeding in our company.
The next question comes from Laura Boucher from Octavian. Please go ahead.
Good morning. Thank you for taking my questions. I have three. First, just going back on the, on the Chinese issue, I mean, maybe I'm getting a little bit ahead of myself, but is wind going solar? And by that, I mean, from what you know, can the Chinese, they stock up on blades, given they have such overcapacity, and later on, meaning for, for years to come, ship them to the West, like they did with the solar panels?
Again, from your, you know, your experience. And second one, in Q1, you mentioned that some tooling projects were postponed. Maybe you spoke about it already and I missed, but have they come through now in Q2, or do you still expect them in the second half? And finally, the orders from the OEM seems to continue with very good momentum. Just to confirm again, when do you expect it to start reflecting in your business? And actually, just quick, why don't you also publish your order intake as well?
Okay. Morning, Laura. Thank you very much for your question. So let me start with the first question. Is wind going solar? I mean, clearly what we see is that China is today already the biggest wind turbine market of the world, and we see this in the numbers that 60-65%, in some years, 70% of the new wind turbine and the wind turbine installations are happening in China. So yes, clearly, China has a huge leverage in terms of scale and also competitiveness, and obviously also a lot of capacities installed in the country.
And this is one of the reasons why we are also, for our business, concluding that doing business in China, for China domestically becomes more competitive. And this is also why we communicated that we are only doing things which make sense for us. We are only going for projects which are profitable, and not for projects where we just create sales, but potentially negative profitability. And this is impacting sales in a negative way, obviously, compared to a couple of years back, which we had shown as well. Still, I think that Chinese competitors of us are strong today in China, but they are not necessarily strong outside of China. They also would need to prove to manage facilities around the globe, to provide the necessary customer service around the globe.
I think this is an absolute strength of our company. So I'm, let's say, short-term, not worried that we are overrun by the Chinese, but clearly this is an element which we see where we need to prepare ourselves where we are working on improving our competitiveness, improving our relationships with our Western customers. Proximity customer service, again, are two very important elements here. Then, of course, we see, and you know that as well, in some areas of the world input duties being imposed to Chinese suppliers to protect certain elements of the value chain. This is obviously also helping our Western customers, and consequently also us to supply a certain share to those into those markets.
Your second question related to the tooling business. Yes, we have seen delays. We have seen delays from Q1 out. We've also seen other delays in Q2, where customers pushed out new projects even into 2025, and I tried to mention that in one of my bullet points related to what we've seen, probably the lowlights in the first half. We see that some of our customers, Western customers, who are, I would say, financially more challenged, who are in the midst of certain restructuring projects, that those customers also delayed, for example, the start of new turbine platforms.
Or that they decided on purpose to not launch a new, for example, blade version, but keep the existing blade version for a longer period of time. And those things are obviously impacting the investment schemes of those customers, and consequently, also the mold business. So we see that or the tooling business. We see that, and this clearly, clearly, I would say, a headwind impact, which we have considered in our half-year financials and also in the outlook. But clearly this is something which is going to happen. And now I'm frankly, I forgot your third question, but Javier remembered it, and he will cover it. Now, your third question was in general about ramping up the wind business, if I remember well, and then followed by the question why we do not report the order intakes. Let's take-
Yeah, it was on the OEMs, the order momentum and when do you expect it to reflect on your business? And then, yes, the second one, why you don't publish your order intake?
Probably on the third one, I would then afterwards give back to Mitja, but on the order intake, I would not say that with the order intake you would get a good view on our future sales, because we are not measuring it on the order intake, but on the piece of the wallet that we get from each customer. Nevertheless, I take this as an input, and we will take a look.
Okay, and then let me just come back. And again, I'm just referring to what I said about the market outlook. The short-term market outlook, we actually do not see major growth in the different markets we are operating in, except onshore Europe, as I said, where we see a stronger permitting in particular in Germany. So we have, with most of our customers here, a share of wallet agreements, as Javier just said. So, consequently, if market is growing, we will also see certain growth momentum for us in terms of volumes here.
But again, when I just look at the numbers, and what we see, and also when we talk to the customers, I think there is a certain level of cautiousness, in particular, short term, in terms of blade manufacturing demand. And again, this is another element which we always need to consider. Wind turbine installation numbers are not one to one directly translated to the amount of wind turbine blades produced.
We still see this year, and when you listen to one or the other call of our customers, they even expect it to a certain degree next year, that they will still deplete blade inventories. And this is also something we see. We see that with some customers year over year, negative impact, because they are still eating through sizable blade inventories. Again, this still also has a certain impact, but overall, I would say we in general move with the Western market momentum. If those markets substantially grow, then we are in, and if they are moving rather modestly, then we are similarly in.
Okay. Thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mitja Schulz for any closing remarks.
Thank you very much. Thank you for all your questions. Highly appreciated, and thank you very much for your continuous support. With this, I'm ending the presentation, and I wish you all fantastic remaining week, and talk to you soon. Thank you.
Ladies and gentlemen, the conference is now over. Thank you very much for participation and the interesting questions. You may now disconnect your lines. Have a nice day.