Full Year 2019 Semperit AG Holding Earnings Call
Vienna Mar 21, 2020 (Thomson StreetEvents) — Edited Transcript of Semperit Ag Holding earnings conference call or presentation Friday, March 20, 2020 at 2:00:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* Martin Füllenbach
Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO
* Petra Preining
Semperit Aktiengesellschaft Holding – Member of Supervisory Board
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Conference Call Participants
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* Christian Obst
Baader-Helvea Equity Research – Analyst
* Markus Remis
Raiffeisen CENTROBANK AG, Research Division – Financial Analyst
* Richard Schramm
HSBC, Research Division – Analyst
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Presentation
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [1]
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Good afternoon, ladies and gentlemen. A very warm welcome from Vienna to present the 2019 Year-End Results for the Semperit Group. Obviously, in very difficult but demanding times.
With me in the call is our new Interim CFO, Petra Preining, who will present the financials in a few minutes. Petra is a highly experienced finance executive and has most recently been a member of the Supervisory Board of Semperit, so now she understands the other side of the table in the meetings. Hence, she knows not only the company, but also the financials in great detail, and I’m very privileged and grateful to have her on our Executive board if our new CFO has been officially appointed.
Please note that given the currently extremely difficult situation of the global coronavirus pandemic, we have no visibility to quantify the impact of COVID-19 on our 2020 results. Therefore, our focus today is essentially on historical results for 2019.
We are not in a position to discuss the sales process for Sempermed and/or to provide further insights into our strategy review. In view of the full concentration currently required on crisis management, in connection with the possible effects of the coronavirus, we cannot rule out the possibility of delays in other topics and projects.
Guidance for revenues and operating results will be provided with the Q1 2020 results release in May at earliest. And one more remark about the extraordinary circumstances of these days,
Please bear in mind that due to the indispensable social distancing, we are all connected to this call from different ends. So please, I kindly ask for your patience if technical difficulties might occur.
We appreciate your understanding and patience in this respect.
Given the unprecedented corona pandemic in recent weeks, let me start at Slide 2 with a short overview where we currently stand and how we have been trying to take decisive actions to contain the spread of the virus among our employees. You will remember that I had emphasized health and safety being my first priority when I stepped up as the CEO of Semperit in summer 2017. But in times like these, this applies even more so. What I can say as of today, there is no employee at separate hospitalized or critically ill with corona, but we have to monitor this very closely. We took strict measures to try and contain the spread of the virus by reducing the physical contact between our employees to a minimum, notably by introducing work from home at our headquarters and in all functions where possible as of last week and imposing travel and commercial restrictions.
In terms of procurement, we currently don’t face any shortage of critical raw materials but look into increasing inventory and strengthening local supply chains through alternative providers. Logistically, we would expect longer delivery times, particularly in Europe, as borders are being closed and long queues for (inaudible) have been built up in recent days.
As to production, things have not come to a standstill and we don’t face any restrictions right now. However, this is most likely to come to a slowdown as we would expect more people getting ill and delivery periods to increase. What we must also note is that our glove production in Malaysia, which is currently running at a very high level, could become adversely influenced by restrictive measures taken by the local government. With regards to our Chinese production, after an original closure for less than 2 weeks, the situation has now pretty much normalized.
Finally, in terms of our customers, as of today, we have not faced any decline in our order books due to the corona pandemic. However, we would expect adverse effects in 2020. But at this stage, this is not possible to quantify yet. I’m convinced that in the given environment, you will understand that it is anything but easy to continue with the figures right now. However, even in this exceptional situation, it is important for us to answer your questions.
In view of the uncertainties caused by the coronavirus, I would ask you to focus on the earnings figures for 2019. We appreciate your understanding and patience in this respect, particularly when it comes to the Q&A later in this call.
Starting with the highlights for 2019 at Slide 4. The revenue decline of 4.3% was mainly a result of the economic slowdown in the second half of the year. Despite this top line pressure, I’m very proud to report that we managed to improve significantly our operating results, both at EBITDA and EBIT level, with the transformation and restructuring process having a material impact on the level of profitability in our business. So we recorded, for the eighth time in a row, a year-on-year improvement of the quarterly results. Adjusted EBITDA was up by 26.8% to $63.8 million, with the adjusted EBITDA margin of 7.6%, having almost doubled since 2017. The $48.8 million impairment at the end of 2019 resulted in a net loss of $44.9 million, which was still well below the EUR 80.4 million loss in the previous year. More importantly, we generated a positive free cash flow after previous periods of cash outflow, which helped to strengthen our balance sheet. At the same time, we reduced CapEx to $31.9 million, which is essentially maintenance CapEx.
As announced in late January, our newest strategic direction implies the separation from our medical segment, while at the same time, continuing with our rigorous focus on profitability, process optimization, quality improvement and the reduction of complexity. In this context, our new industrial rubber strategy will mainly focus on regional and application-related customer intimacy, with Semperform having been split into 2 segments to enhance the focus on new markets.
Over the page, we want to provide you with our 2017 to ’19 restructuring efforts and the hard numbers for some of our key KPIs. Top line growth was largely impacted by operational streamlining, notably the closure of the Sempertrans production sites in France and China and also the sale of the Semperflex business in Italy, but also more recently, the economic slowdown in the second half of 2019.
Please note also that we, furthermore, have centralized the Semperform service functions for Dalheim in Hückelhoven. In turn, the key targets of our SemperMOVE10 program achieved an EBITDA margin of 10% by 2021, was improved year-by-year, and we achieved 7.6% by the end of 2019. As we had mentioned in our analyst call on January 30, the new focus on the industrial sector only led to a revision of this target going forward.
As for SemperMOVE10, we had identified about 800 measures for operational improvement, with more than 570 or 71% being implemented by end 2019. There’s further upsides to come from additional operational and growth initiatives as part of the SemperGrowth200 program. As a result, the adjusted EBIT margin has moved from being negative in 2017 to plus 3.4% in 2019, double the amount of the previous year. Improved results, combined with active working capital management and reduced CapEx, led to a positive free cash flow, actually after being negative for 4 years on a normalized basis, which is crucial for our value management approach.
Finally, adjusted net profit was almost breakeven in 2019, and this is against the EUR 48.8 million impairment at Q3 2019. As the CEO of the company, let me reassure you that I am absolutely committed to continue with the strong drive for higher profitability despite the current market turmoil and the real danger of economic recession due to the corona pandemic.
The next slide highlights graphically the main points I have just made, both on top line pressure on the left-hand chart, and more importantly, the significant improvement in operational performance on the right. The 4.3% year-on-year revenue decline at group level divides between a 3.5% decrease for the industrial sector and 5.8% for the medical sector. In turn, when looking at the 26.8% improvement of adjusted group EBITDA, the industrial sector was up by 16.3% to EUR 87.5 million, with all segments contributing to the profitability uplift.
We are also pleased that the medical sector achieved again a positive adjusted EBITDA of EUR 1.4 million.
As we had shown on the previous slide, it is also more than encouraging that the adjusted EBIT almost doubled from EUR 15.4 million in 2018 to EUR 28.2 million last year. Looking at the period of 2017 to 2019, we can truly report back today that the transformation program has made a tangible material impact.
Starting with the operational highlights at Slide 8 and looking at revenue developments first, the industrial sector declined by 3.5% year-on-year, which was mainly a combination of lower market demand and our own focus shift to higher quality of the order book and product profitability.
The latter applies mostly to Sempertrans, which I would describe in terms of small is beautiful, while Semperflex and Semperform faced more serious market headwinds in the second half of the year, as we had already guided in August 2019. In turn, Sempermed revenue’s declined by 5.8%, facing lower sales due to both our strategic change in the production portfolio towards nitrile and reduced outsourcing, which implied essentially less traded goods.
Turning the page at slide 9, we summarize again the industrial sector’s quarterly adjusted EBITDA development for 2018 to 2019, which shows an upward trend for the first 3 quarters of 2019 and a decline in Q4 2019. Clearly, the economic headwinds in the second half of 2019 had a material impact on the operating results in the last quarter, with the adjusted EBITDA margin down by 1 percentage point. For the year as a whole, we still managed a strong operational improvement in the industrial sector, with adjusted EBITDA being up by 16.3% year-on-year.
Looking at the individual industrial segments and starting with Semperflex at Slide 10 first. Revenue was slightly down on the back of reduced market demand, which mainly resulted from 2 developments: first, destocking combined with a more cautious inventory management; and second, competitive pressure, which led to a reduced order book. EBITDA followed the cyclical development in the third and fourth quarters. As you can see at the chart on the top, with EBITDA just being slightly below 2018 year-on-year and the EBITDA margin still at a respectable 18.1%. Going forward, we would expect the ongoing destocking and lower demand of our customer base to have a negative impact on revenues and EBITDA over the next few quarters.
Over the page, the 7.6% year-on-year top line decline at Sempertrans was largely a result of streamlining following the closure of our sites in France and China, and our focus on the quality of the order book. This, however, resulted in a significant operation improvement with EBITDA being up by EUR 9.1 million in absolute terms, and the EBITDA margin improving to 10.1% in 2019 from previously 3% in 2018. Looking ahead, we expect the order book to come slightly under pressure due to reduced market demand, which applies particularly to the European lignite industry.
Completing the operational highlights for the industrial sector with Semperform at Slide 12. Revenue was stable year-on-year despite lower market demand. Clearly, the economic downturn has impacted our order book, and we witnessed this most strongly in the fourth quarter. In turn, EBITDA was up by 18.8% year-on-year, with strong EBITDA margin improvements over the first 3 quarters of 2019 and a decline to 7.8% in the fourth quarter.
As we had announced earlier, Semperform has been split into 2 segments as of January 1, 2020, with a downsized Semperform, including hand rates, liners, foils and engineered solutions and new sample seal for profiles and sheeting. At our next Q1 2020 results release, we will report the financials separately for each segment.
On Slide 13, we summarized the major operational highlights for Sempermed. As mentioned before, the top line decline was driven by the strategic change in our production portfolio to nitrile and reduced outsourcing. At the same time, the combination of inventory streamlining by key customers with increasingly difficult market conditions resulted in a decline of the order book in the second half of 2019. Against this backdrop, we are delighted to report significant operational improvements, with EBITDA in the second and third quarter being in positive territory, and for the year as a whole, being up by EUR 5.3 million in absolute terms. In turn, the impairment of EUR 48.8 million resulted from the increase in competition and the implied higher CapEx requirements.
And with this, I’ll hand over to Petra to take us through the financials.
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Petra Preining, Semperit Aktiengesellschaft Holding – Member of Supervisory Board [2]
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Thank you, Martin, and a very warm welcome from my side as well. This is officially my first day at work as the new interim CFO of Semperit. This is privilege to be able not only to address our investors and analysts directly, but also to report a very good development with respect to the results for 2019, which, as you know, I had closely followed before at the Supervisory Board.
I start the overview of the financials and the profitability on a full year comparison at Slide 15. As Martin had already discussed key developments at revenue and adjusted EBITDA level, let me now move lower down the P&L and highlight the fact that adjusted EBIT improved by 83.4% year-on-year, and that the adjusted EBIT margin doubled over the period. Adjustments were made for the positive EUR 4.0 million one-off effect for the release of the provision for Sempermed’s tax liabilities in Brazil and the negative one-off effects of EUR 48.8 million due to the impairment at Sempermed. This led almost to breakeven at adjusted net earnings, which is a significant improvement not only compared to 2018 but also against the backdrop of the economic downturn in the second half of 2019.
Details of Slide 16 have already been discussed by Martin before. From my perspective, this chart shows clearly that we need to address the issue of structural pressure coming from the markets for Sempermed, which will still be there once the crisis is over. In turn, the industrial sector proved to be resilient despite lower order books, destocking and lower demand at our customer base.
Let me make it absolutely clear, I fully support the new industrial rubber strategy, and I was happy to join the executive board in a short notice to make sure we can keep the momentum despite the current external developments. Over the page, we show practically the bridge from reported adjusted EBITDA and EBIT in 2019, showing the EUR 4.0 million release of the tax provision in Brazil at EBITDA level and the EUR 48.8 million impairment at Sempermed at EBIT level. Please note that the latter had to be changed from the original amount of EUR 46.8 million at the end of Q3 2019 to EUR 48.8 million by the end of 2019 due to foreign exchange movement and other additions. Given the current market turmoil and recessionary developments as a result of the corona pandemic, we cannot exclude further one-offs in 2020.
When looking at adjusted EBITDA by segment on Slide 18, all with the exception of Semperflex in the corporate center, improved the operational performance. The significant margin improvement implied a 26.8% year-on-year increase in adjusted EBITDA. Martin already pointed to the fact of destocking and competitive pressure having impacted EBITDA at Semperflex. In turn, the corporate center continues with higher costs as the combination of SemperMOVE10 and SemperGrowth200.
Turning the page. I’m in a very privileged position to report the eighth consecutive quarter of consistent year-on-year EBITDA improvements as the chart on the right shows. Even the fourth quarter of 2019 were higher than the comparable period in 2018 despite the economic downturn in the second half of 2019, which is a clear sign that SemperMOVE10 has made a material impact. The chart in the left shows that for the year as a whole, both reported and adjusted EBITDA improvement — improved by a significant margin.
On the next slide, we showed the increasingly strict CapEx discipline we have applied since the second quarter of 2019, which implies predominantly maintenance CapEx. You will remember that we still had an element of growth investment in our CapEx number in 2018, with about 50% used in those days for Semperflex and mixing. While Sempermed and Semperflex were the largest recipients at segmental level in Q1 2019, Semperform received EUR 2.5 million of maintenance CapEx in Q4 2019. In total, we had a CapEx spend of EUR 31.9 million in 2019.
On Slide 21, we present working capital development by quarter, which has become a major strategic pillar of our financial policy framework. Our active working capital measures started to show a material impact in the final quarter of 2018, with inventories being further reduced significantly since then. At the same time, trade receivables and trade payables expanded slightly during the first 3 quarters of 2019 but are now getting down to a more restricted level. Overall, trade working capital as a percentage of the last 12 months revenues ended at 18.5% by year-end 2019, which is below the 20% level, and we would aim to keep it around 20% going forward.
As some of you have asked in the past to show how we aim to achieve a positive free cash flow by the end of 2019, we have prepared a chart on Slide 22, comparing the operating and investment cash flow with a free cash flow since 2016. Clearly, the strong improvement in operating cash flow on the back of the better operating results in 2019, supported by active working capital management and strict CapEx withdrawn, has resulted in a material increase of free cash flow. At times of extraordinary market turmoil and volatility, cash remains king. And with the positive free cash flow generation over the last 12 months, we have strengthened our balance sheet against current external shocks.
In support of what I just said, the analysis of our balance sheet at Slide 23 shows that we continue to have a very solid cash position, with cash and cash equivalents having increased from EUR 122 million used at year-end 2018 to EUR 141 million at the end of 2019. At the same time, we managed to reduce our net debt by EUR 39.2 million since end 2018 to EUR 73.5 million as of December 31, 2019, and by net debt EBITDA of 1.1x compared with 2.4x as of end of 2020 — 2018, excuse me. This puts us for end of 2019 in a very comfortable position, not only with respect to our covenants but our own stringent financial framework. In this context, the equity ratio continues at 39% as of year-end 2019 to be above our more than 30% target, at least on the back of the EUR 130 million high-tech capital. In this context, the remaining undrawn EUR 20 million has been extended to the end of 2020.
Finally, although we had a very good year in the industrial sector, the development at Sempermed led to a negative net profit in 2019, so very close to breakeven. Hence, management will not propose a dividend through the AGM in July 2020.
With this, I have come to an end of my part of the presentation and hand back to Martin for final remarks.
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [3]
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Thank you, Petra, and let me complete our presentation with the management agenda for 2020 at Slide 25. There is no doubt and we are currently going through an extraordinary period of uncertainty and volatility as a result of the global corona pandemic. This is not only a huge challenge for managing the company on a daily basis, but more importantly, making sure that our employees are safe, healthy, and with a clear understanding what we are trying to achieve.
Against this backdrop, we are not only trying to address the impact of the global downturn by taking proactive measures, but also in continuing to implement the restructuring and transformation program, which had shown clear signs of higher profitability.
While there is no doubt that the corona pandemic will result in a major economic setback, not just for us but across the globe, we feel vindicated of having taken tough measures in the past to get the company back on track for sustainable future growth. While there is currently no visibility for 2020, what we can say at this stage is that we expect significant top line and margin pressure and will provide a guidance for the year with the publication of the Q1 2020 results at earliest.
As to the next steps in terms of implementing our new strategy, the successful execution of our planned separation from the medical business remains top priority, while at the same time, we embark on further regional diversification with a much stronger focus on North America. In addition, the focus on customer intimacy will change our corporate DNA and new initiatives in innovation and digitization are taken to explore further growth potential.
With this, we have come to the end of our presentation. And Petra and I, together with the team, are now available for any questions you might have. As I had pointed out at the beginning, today’s call is about historical numbers. Hence, as they say in figure skating, the compulsory part, whereas the freestyle, can only follow once we are over the current global pandemic and managed to sell; Sempermed. Thank you for your understanding, and please go ahead with Q&A.
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Questions and Answers
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Operator [1]
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(Operator Instructions) First question comes from the line of Markus Remis with RCB.
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [2]
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So I’ll give it a try and add something not — which has been touched in the presentation, but is not solely related to 2019. You mentioned measures by the Malaysian government regarding the glove business. Can you elaborate on what you mean? Does that mean kind of export stops or anything like that?
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [3]
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Very good and important question, thank you. Currently, we understand that the — that all of Malaysia is close to complete lockdown unless you provide necessary medical equipment, which is the case with our glove manufacturing. But even for glove manufacturers — and don’t forget, 90% of the global gloves are being manufactured in Malaysia. So this is a global thing. All manufacturers are currently facing a 50% compulsory decline of workforce. And secondly, the suppliers of the packaging material are currently being locked down. This means we can produce gloves most probably with only 50% of our workforce, but we need urgently to overcome the lockdown of the supply material providers. This is all ongoing. We, especially me, are in continuous personal contact to the Austrian government, and I can assure you that on all levels, from all different kinds of ministries, there is discussions ongoing with the government in Malaysia to overcome this situation.
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [4]
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Okay. But you’re allowed to export, so you can ship them to Austria or wherever?
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [5]
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Right now, we don’t really see any export limitation. But as the crisis is just developing. I don’t know what to expect in the next days.
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [6]
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Sure. Okay. So that implies that you don’t actually have any tailwind from the situation in terms of volumes? I mean by how much is production down at the moment, if you own that 50% of the workforce?
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [7]
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No, sorry. Let’s be clear here, sorry. We’re having a lot of tailwind in terms of order intake. Again, this is a 2019 call. The current order intake I see — and I can’t disclose the numbers at this moment in time, the current order intake I see in the med business is extremely strong. And right now, I’m still producing at full steam. But with the military being sent out this morning all over Malaysia to ensure the lockdown of the industry, I don’t know what to expect next week. So right now, we’re working at full steam. But again, next week, I might face completely different situation, especially when it comes to the supply of packaging material.
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [8]
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All right, very clear. What does that mean in terms of prices? There must be a tremendous uplift for gloves?
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [9]
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I’m sure you understand that we don’t disclose pricing strategies in this call. But obviously, this is — I mean this is — this is the normal game of the market. So prices are definitely not declining at the moment.
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [10]
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Sure. Can I also ask you regarding a comment on med? You mentioned the timely — yes, I think you explicitly used to return timely disposal. I mean, how does the whole situation impact the disposal process? I guess you can’t meet with buyers in person, so how is that evolving?
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [11]
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I can’t comment on details, as you definitely understand. But also, this project is at full steam, and as soon as there will be more evidence and capital market relevant evidence, we will definitely by disclose and bring it to your attention. But so far, there is no blockage — there’s no blockage of any discussions or whatever.
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [12]
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Okay, good. Last question on the potential negative effects that are related to the disposal. I’m not asking about the figure, but what would that be? Which kind of — what are the mechanics behind?
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [13]
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Sorry, can you please repeat? The line was broken here on my side for a second?
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [14]
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Sorry. You mentioned negative effects, which you expect in connection with the disposal. So I’m not asking about the figure, but just what are the triggers for that? Where does this negative effect come from? I mean I understand that if you sell below book value, but is that the way we should think about it? Or are there any kind of accounting-related issues?
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Petra Preining, Semperit Aktiengesellschaft Holding – Member of Supervisory Board [15]
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And let me take this one. On one hand, quite obvious, you will — or we will face — we might face transaction costs, which definitely will impact us. On the other hand, you have to take into consideration that there are FX effects that always has been booked to the LTI. When selling the business this effect will be recycled in the P&L. So in the case of negative FX effects, this would also negatively affect the P&L.
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Operator [16]
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(Operator Instructions) Next question comes from the line of Richard Schramm with HSBC.
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Richard Schramm, HSBC, Research Division – Analyst [17]
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First, I would like to know, you have mentioned that you have been selective on order bookings, especially in Sempertrans, which obviously caused quite nice positive effect in 2019. Is this further possible? Or would you say that the order book now is cleaned up and so far that you have now a very good order book, and there’s no longer any problematic project in there which might be a tempering factor for the margin development here?
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [18]
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That is the right assessment. We’ve cleaned up the order book. And as far as of today, I don’t expect, unless driven by pandemic situations, any surprise from the existing order book.
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Richard Schramm, HSBC, Research Division – Analyst [19]
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Okay. And then in respect of your statement concerning the strategic positioning of the company, it’s obviously quite fashionable to mention digitization. Everybody has to do with this in these days. But I have difficulties here to see what this would mean for your business. Do you mean this more internally, that this will affect your processes within the company, which then should be streamlined and automized and so on? Or do you have also the idea to, yes, develop somehow digital products to put it in currency this year? What should we think about this?
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [20]
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Sure. I don’t follow fashion. I follow customer logic and customer demand. It’s very obvious that digitization will touch, as you rightly said, both sides, internally and externally. I’m more focusing here on external top line impact in the years to come. We’re in early stages. But as I said right from the beginning, we have to make rubber smart, and we have to give digital add-ons, product functionalities to rubber products. And we’re in a pretty good way here. Unfortunately, I can’t disclose what we’re doing because, obviously, this touches the heart of our R&D and our product development. And obviously, this will also follow a very clear IP strategy. But we will definitely bring digital logic, digital components, digital add-ons to old-fashioned rubber products.
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Richard Schramm, HSBC, Research Division – Analyst [21]
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Okay, sounds very interesting although I’m not an expert. Then, yes, we have to wait and see what you really bring then to the market. What would be the time line for this? Should we expect something to happen here already in the current year? Or is this really more thing for the midterm?
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [22]
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There is no — look, this is organic growth, where we start from the scratch, what most of the competitors in this environment basically do. So there is not a big of a top line impact to expect in 2020 or ’21, but it’s all about the market positioning and then the years to basically come afterwards. I would love to disclose more here, but please understand this is a hot topic I can’t speak about. But even me, I was really surprised to see what the teams are really working on. And I’m sure you would like it.
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Richard Schramm, HSBC, Research Division – Analyst [23]
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Okay. So we’ll see then. Last point I would like to touch is the free cash flow and working capital development. You succeeded in reducing working capital, which is a bit of a surprise to me because one would have expected that in light of the upcoming problems, one might increase inventory and especially here? Or was this not yet on your plan in Q4 last year, but it’s more a thing which has happened in the current year that you have obviously increased inventories here to be prepared for some shutdowns on the supply side?
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Petra Preining, Semperit Aktiengesellschaft Holding – Member of Supervisory Board [24]
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We will comment on the working capital development of 2020 in the upcoming Q1 2020 call.
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Operator [25]
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The next question comes from the line of Christian Obst with Baader Bank.
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Christian Obst, Baader-Helvea Equity Research – Analyst [26]
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I have a — on concerning cash, of course, we are in terms of cash protection. You’re paying not a dividend. So what is the current — your current plan for CapEx and growth ideas for the next — or for this year? And this is the only question I have.
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Petra Preining, Semperit Aktiengesellschaft Holding – Member of Supervisory Board [27]
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As reported earlier, the CapEx plan is essentially covering maintenance expense to keep the current operation going into full utilization. Given the current situation, the natural, we are reviewing CapEx requirements at a regular basis and term, right now really much higher greater detail and frequency than before. So it’s on top of our list. As said, cash is king.
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Christian Obst, Baader-Helvea Equity Research – Analyst [28]
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Of course, and add-on to that, what is your maintenance CapEx in the current structure?
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Petra Preining, Semperit Aktiengesellschaft Holding – Member of Supervisory Board [29]
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We disclosed the guidance of 2020, that we will stick to the below EUR 40 million target, and this is mainly maintenance CapEx and some safety measurements.
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Christian Obst, Baader-Helvea Equity Research – Analyst [30]
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Okay. Nothing has changed on that?
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Petra Preining, Semperit Aktiengesellschaft Holding – Member of Supervisory Board [31]
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Correct.
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Operator [32]
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(Operator Instructions) We have a follow-up question from the line of Markus Remis with RCB.
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [33]
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A follow-up on China, please. Are your operations kind of normalizing? Because this is what we’re hearing from almost every company, would the status grow here? And then also regarding the Austrian workforce, if you could comment about kind of the intention to put Austrian labor on short term — sorry, short time work, yes, capitalizing on the government measures?
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [34]
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To the first one, China, we’re back to production. Well, as all others do, we’re ramping up production again. That is good news. As to Austria, of course, we closely monitor the development. But as long as we are not cut from our supply, as long as the customer demand does not decrease and so far, we only see minor impact, and as long as we can run production with enough staff without sick leave, there is no reason for us to discuss short-term shifts.
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [35]
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Okay, very clear. Final question on the balance sheet. Can you remind us of the refinancing needs in 2020? And is there any reason to believe that you would have the remaining EUR 20 million hybrid capital? Or under which conditions to — under which conditions you would consider tapping the remaining portion?
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Petra Preining, Semperit Aktiengesellschaft Holding – Member of Supervisory Board [36]
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On the hybrid, I mean, it’s — Martin has made that — made it very clear in his presentation, and I think so did I. And everybody is the same current situation that the times ahead of us are not entirely clear. So if we were to say short-term liquidity pressure, then in this case, we would draw the EUR 20 million hybrid. As you know, it has been extended to the end of 2020, so we have some time to decide on this depending on the situation as it will develop.
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [37]
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Okay. And on the refinancing, how much do you need to refinance or has been already discovered already?
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Petra Preining, Semperit Aktiengesellschaft Holding – Member of Supervisory Board [38]
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There’s a certain part of the SEC, which has to be settled in 2020. But…
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Markus Remis, Raiffeisen CENTROBANK AG, Research Division – Financial Analyst [39]
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Can you give us the amount?
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Petra Preining, Semperit Aktiengesellschaft Holding – Member of Supervisory Board [40]
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It’s below EUR 30 million. But I would come back with the details on the Q1 call in case there is a need for refinancing.
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Operator [41]
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(Operator Instructions) And there are no further questions on the line. I pass back the call to Martin Füllenbach for closing remarks.
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Martin Füllenbach, Semperit Aktiengesellschaft Holding – Chairman of Management Board & CEO [42]
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Thank you very much, everyone, especially having the patience for sometimes a little longer taking answers. We try to keep this crispy and short, and I’m happy to get back to you at the Q1 number release, and we’ll reach out to you again. All the best to all of you. And everyone, stay healthy. That’s the most important thing. All the best to you. Bye-bye.
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Operator [43]
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Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thanks for joining, and have a pleasant day. Goodbye.