Management Report Management Report FINANCIALLY SOLID DESPITE A CHALLENGING COVID-19 Reaction to the COVID-19 pandemic At the end of March, Hilti launched a four-pillar program to cope with the COVID-19 challenges. A strong emphasis was put on protecting the health of Hilti’s employees and particularly the PANDEMIC YEAR sales force, resulting in significantly less time being spent with customers and on jobsites during the (partial) lockdowns. Additionally, the Group implemented a hiring freeze, optimized indirect Management Report cost expenditures (such as travel, events, etc.) and implemented temporary measures to gain time before deciding upon structural adjustments. At end of December 2020, the Group counted 29,549 team members, a decrease of 1.5 percent compared to the previous year. Hilti adjusted its structures only very selectively in certain markets and avoided Group-wide restructuring. At the same time, the Group continued to fully fund its strategic initiatives in the area of innovation, digitalization and cybersecurity with significant additional investments. Lastly, the Hilti Group Picture increased its cash reserve through net working capital optimization and debt increase to a total A139946.tif cash position of CHF 1.3 billion (2019: 1.1 billion). Height: 7.2 cm Continued investments in Despite the pandemic, the Hilti Group launched 74 new, innovative products and services onto Width: 12 cm innovations the market. A convincing example is the introduction of the Jaibot, a semi-autonomous mobile ceiling-drilling robot. Expenditure for research and development reached CHF 358 million, a share of 6.7 percent of net sales. With the additional expansion of integrated solutions combining products, software elements and services, Hilti continues to provide innovative solutions to help customers be more productive, work more safely and enjoy greater success. Besides digitalization of customer- related processes, the Group also drove forward the digitalization of its corporate processes, such as a new people approach with an underlying HCM suite, and an accelerated rollout of a With a decrease of net sales in Swiss francs of almost 10 percent and a turnover of CHF sales process with a new CRM system. 5.3 billion, the Hilti Group closed 2020, the challenging year of the COVID-19 pandemic, with an operating result of CHF 728 million (-7.0%). The decline in net sales is a result of Disproportionate decrease of The operating result decreased by 7.0 percent to CHF 728 million (2019: CHF 783 million). Net the pandemic-induced lockdowns combined with a slowdown in investments in buildings operating result profit decreased slightly more to CHF 531 million (2019: CHF 591 million), due to a slightly higher and industry assets as well as a continuous appreciation of the Swiss franc. Due to income tax rate and extraordinary effects. Despite the decrease in sales, the significant negative prudent cost management, the Hilti Group was able to continue investing in strategic currency effect and the ongoing strategic investments, the return on sales (ROS) grew slightly initiatives to ensure the company’s long-term success. and reached a new high of 13.7 percent (2019: 13.3%). This is the result of solid margin development and prudent overall cost management. By contrast, the return on capital employed The sales development followed three phases: a strong start in the first two and a half months, (ROCE) decreased by 3.4 percentage points to 16.4 percent (2019: 19.8%) due to the lower a lockdown-induced decrease until the end of May and a heterogeneous yet steady recovery in capital turnover. This was caused by a combination of the buildup of a higher liquidity reserve, the second half of 2020. While the Group’s sales decrease was most pronounced after the first the implementation of IFRS 16, a negative currency mix of the capital employed and lower sales. five months at 16.3 percent, the situation improved from June onwards, resulting in a 9.6 Nevertheless, both ROS and ROCE continue to reside in or on the upper end of the strategic percent full year sales decrease in Swiss francs and 4.3 percent in local currencies. target corridors of 10-12 and 15-20 percent, respectively. On a regional level, the results differed quite substantially depending on the severity of the The free cash flow (before the acquisition and sale of Group companies) reached CHF 459 pandemic and the lockdown approaches of the local governments. While Central and Eastern million (2019: CHF 303 million) leading to a cash flow conversion rate of 86.5 percent. This was Europe and Northern Asia managed to close the year with positive sales growth, Southern Asia a result of a strong focus on net working capital optimization by carefully managing the inventory and the Middle East faced a double-digit decrease. The Americas finished the year with a 4.6 and accounts receivable combined with a temporary reduction in expenditures for the global percent decrease which was disproportionately impacted by Latin America. Significantly weaker modernization of infrastructure and workstations. currencies in emerging markets, as well as a weaker euro and US dollar, led to a negative currency impact on Group sales of over 5 percent. The pronounced negative development of the US dollar, euro and emerging markets exchange rates had – despite good natural hedging in the main currencies – a negative impact of CHF 61 million on the operating result (2019: CHF -27 million). Healthy balance sheet and solid The equity ratio was 1.7 percentage point above the previous year’s figure and 1.8 percentage liquidity points below pre-IFRS 16 implementation levels. With this, the equity ratio continues to be over 50 percent. Despite the effects mentioned earlier caused by the pandemic, the total cash position increased to CHF 1.3 billion (2019: CHF 1.1 billion). This was achieved by the strong free cash flow and an increase of the Group’s interest-bearing debts. As part of the Group’s refinancing strategy, Hilti issued a five-year corporate bond in June 2020 amounting to CHF 150 2020 Financial Report | 6 2020 Financial Report | 7