Dätwyler Holding AG (DAE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the presentation of the Pillar Annual Results 2021 Conference Call and Live Webcast. I am Paul, the Chorus Call operator. [Operator Instructions] At this time, it's my pleasure to hand over to Mr. Dirk Lambrecht, CEO; and Mr. Walter Scherz, CFO. Please go ahead, gentlemen.

Welcome to today's call. My name is Dirk Lambrecht, and here with me is Walter Scherz, our CFO; and Guido Unternaehrer, our Head of Corporate Communication. First of all, we really regret that we cannot meet in person for our annual results conference. However, it was great to see many of you at our Capital Market Day in September last year. Now I will move forward with our agenda. After our presentation, Walter and myself will be happy to answer your questions. In '21, all our continuing businesses enjoyed a strong demand and contributed to the currency-adjusted [ 50% ] revenue growth. We were able to achieve a record revenue of around CHF 947 million, thanks to our strong position in attractive markets and leading core competencies. Thanks to our robust growth, continuous efficiency improvements, a strict cost management and support of all Datwyler employees, we were managed to improve our profitability. Our EBIT increased over proportionately by 23% to CHF 160 million despite the difficult situation in the automotive market and rising costs. Walter and myself will come back to this later. As a result, the EBIT margin improved significantly and ended at 16.9% as the net result rose by 17% to CHF 123 million. In comparison with 2019, our profit figures for our continuing operations are well above pre-pandemic levels. Here, you see our current organization with the 2 market-oriented business area of Healthcare Solutions and Industrial Solutions. They are supported by the 2 group functions, technology and innovation and finance and shared services. We successfully completed our strategic transformation in '21. Datwyler is now a focused specialist for system-critical elastomer components for attractive markets. We achieved a book profit as we sold our last remaining online distribution company, Reichelt. Walter will tell you more about this. Now I would like to move forward with comments on the performance of our business areas. We will start with Healthcare Solutions. This business area offers high-quality system critical elastomer components for containers and delivery systems for injectable drugs. We are proud that we can support leading vaccine providers in the fight against the COVID-19 virus. Our employees are doing an excellent job here despite some very difficult boundary conditions. The Healthcare Solutions business area generated a currency-adjusted 16% revenue growth to a record level of CHF 467 million with a stronger growth of our pharma business of close to 18%. The HS EBIT increased by 32.1% to CHF 104 million. The EBIT margin significantly improved from 19.6% in 2020 to 22.4% in '21. This is due to the good utilization of our production capacities and a positive product mix change. As in the year before, we enjoyed a tailwind as a result of the leading COVID-19 vaccine manufacturers, the demand in the reporting year. Revenue deriving from COVID vaccine components amounted to some CHF 55 million. On this slide, we have summarized some important actions taken in '21. This will continue to strengthen our competitiveness and support our future growth in the health care business. We are continuously expanding our product portfolio through NeoFlex products and needle shoot designs. Our enlarged R&D and innovation team is intensely working on new developments for coating components. We are confident that we will be able to expand our offer for COVID products by end of this year at the latest. '24 -- '21 -- sorry, saw early investments in the expansion of our production facilities above the long-term average. By doing so, we could support the worldwide fight against the pandemic. At the same time, we laid the foundation for our future growth because the new efficient facilities can be used for all of our product categories. Based on the experiences covered during the pandemic, we also further enhance the collaboration of our plants worldwide. We are improving our process standardization and agility at all plants through a new structure of the global engineering group. This will enable us to serve customers even better in the future and to prepare us for further growth. I will discuss the acquisition of the Yantai Xinhui packaging in China, another highlight in '21 in the outlook. I will now switch to the business area, Industrial Solutions. This business area offers customized system-critical components for demanding applications and their mobility, food and beverage, and general industry markets. Here, in comparison with the pandemic in 2020, the Industrial Solutions business area achieved a currency-adjusted revenue growth of more than 13%. The absolute revenue reached CHF 488 million. The business units food and beverage and general industry grew above or slightly below 20%. The business unit mobility reached an 8% growth. With this [ resize ] our mobility unit grew significantly more than the global 2.2% growth of the light vehicle production in '21. The EBIT increased by 10.7% to CHF 56 million, thanks to the higher capacity utilization rate and consistent cost management. This corresponds to an overall 11.4% EBIT margin. The sharp slowdown in the automotive industry in the second half of the year presented a margin improvement. The Food & Beverage business unit recorded strong revenue growth for all customers as planned, thanks to the implementation of the planned price adjustments to accelerate growth in 2020 and '21. The general industry business unit enjoyed a strong demand, particularly in the final quarter of '21. It was able to acquire many promising development projects for smart elastomer components. We also implemented some measures to support future growth in the Industrial Solutions business area. When it comes to the Food and Beverage business unit, we invested in the expansion of our production capacities. This is based on our global customer-specific growth plans for portioned coffee in the coming years. Despite the slowdown in the automotive market, our mobility business unit proactively approached the market by means of webinar and major customer events like in China. This resulted in a record number of new projects and new customers, and this will drive revenue in the future. To promote growth in the General Industry business unit, we are expanding our sales and engineering resources in the 3 key global regions of Europe, the USA, and Asia. With that, I would like to hand now over to Walter, which will give you our financial review. Walter, the floor is yours.

Thank you [indiscernable] and hello, everyone. My name is Walter Scherz, and I'm happy to present Datwyler's annual financial results for the year 2021. Let me start with the reported revenue and results. As Dirk already mentioned, we have completed our focus on system-critical elastomer components in '21. As of the end of September, we divested our last online distribution business at Reichelt. As a consequence, our reported revenue of CHF 1102 million contains CHF 154 million from Reichelt. Reported EBIT increased to CHF 234.2 million, and the reported net result reached CHF 194 million. On an EBIT level, Reichelt's total profit contribution amounts to almost CHF 74 million and positively influenced the results you see. The reported figures from the previous year were impacted by the book losses from the divestments of Distrelec and Nedis. Please note that for your calculations, for your assessments, the starting point for the future are the revenue and profit figures of the continuing operations on which I will elaborate right now. Let's have a look at how revenue developed in the year '21. You can see that Datwyler generated a significant organic revenue growth. For a change, the currency effect was almost negligible. Coming from the prior year's figure of revenue, which was CHF 1692 billion, our turnover for the whole group reached CHF 1101.7 billion this year. Excluding the divested businesses, the continuing operations turnover was CHF 823.3 million in the previous year, which is actually the third pillar on that slide you see. Healthcare Solutions organically grew by 16% or CHF 64.6 million, while Industrial Solutions organically grew 13.9% or CHF 59.3 million. Dirk has explained the reasons or the commercial reasons for these developments. On Datwyler level, this led to a 15% organic revenue increase. Continuing operations thus generated a revenue of CHF 47.6 million. In the second pillar from the right, you see the revenue that Reichelt contributed during the first 9 months of 2021. With that, let's move on to some elements in the profit and loss statement. The consolidated income statement discloses continued operations and discontinued operations, actually, the divestments separately. This facilitates the assessment of our operational performance. The continuing operations are the basis for future development. I would like to make 2 remarks here, too. First of all, the gross profit margin from continuing operations increased to 26.1%. This was achieved despite the raw material price increases and driven by an improved capacity utilization actually leading to beneficial operational leverage. Gross profit increased by almost 20%. Second, thanks to our strict cost management, we were able to minimize the increase of G&A costs for the continuing operations. The global expansion, and Dirk mentioned that of our research and development capacities caused an increase in corresponding costs. Other operating income was lower than in the previous year due to less transitional services to former subsidiaries. Moving on to the EBIT development in '21. You can notice that the reported EBIT was again impacted by divestments. This year, the impact was positive with the operating results and the gain on the sale of Reichelt. The continuing operations EBIT in 2020 amounted to CHF 130.2 million. And this is again the third pillar from the left. As you can see, then moving to the right both business areas continued to strengthen their profitability in '21. The organic EBIT increase in Healthcare Solutions amounted to 31.4%. Industrial Solutions grew its EBIT organically by 11.1%. The currency effects are insignificant this year. The EBIT from continuing operations reached CHF 160.4 million in '21. This represents the [ basis ] for that period going forward. The improved profitability actually demonstrates the operational leverage of our continuing businesses. When you move on to the next slide, thank you very much. Datwyler's EBIT margin development illustrates a resilient operating performance in a challenging environment. The group's EBIT margin, obviously, is a combination of the EBIT margin of the 2 business areas. The figures from 2018 indicate the potential of our focused elastomer businesses. Healthcare Solutions has continuously strengthened its profitability during the past years and has potential for further advancements. Industrial Solutions has managed to keep the EBIT margin at a stable level of around 11.5% during the last 3 years despite the negative pandemic impact in the mobility and General Industry business units and against the automotive industry slowdown. Once the market environment normalizes, we will see an improvement within the business area, Industrial Solutions. On this slide, you see the development of the total interest and finance expenses and the weighted average tax rate compared to the prior year. Net finance costs significantly decreased to CHF 2.4 million with a slightly lower interest expense and due to less volatility on unhedged currencies. We had the volatility experienced in the corona year 2020. With the improved results, the group's income tax expense increased to CHF 37.8 million. Nevertheless, the weighted average income tax rate remained stable at CHF 21.7 million [indiscernable] of course. Looking at the balance sheet. Total assets increased by some 14%. The main reason for this is the CHF 110 million increase in cash and cash equivalents, which you see here on the left side. And that's obviously after the sale of the online distribution of Reichelt. Inventories increased by some 16%. The higher inventory levels on raw materials helped to ease the bottlenecks in the supply chain. On the liability side, and that's on the right side, we continued to repay interest-bearing debt. Corresponding to the lower levels of liabilities, the equity ratio rose to a level of over 75%. Combined with the higher liquidity balances, this resulted in a net cash situation at the end of '21, which we see on the next slide. As illustrated here on the left side, free cash flow continued to grow to CHF 160.4 million. Cash from operations and from the sale of subsidiaries finally led to a net cash balance of CHF 129.1 million at the end of '21 with the total liquidity exceeding interest-bearing debt. Our strong free cash flow and our net cash balance will enable that to pursue further strategic opportunities and investments. A short word on the overall cash flow. The net cash flow from operating activities was more or less stable at around, let's say, CHF 180 million. Cash from operations was mainly used for capital expenditures and to repay almost all of the remaining debt, except for the bond. Net cash used in investing activities overall was lower due to the sale of Reichelt. Net cash used in financing activities decreased to some minus CHF 13 million with a somewhat higher dividend payment, but lower repayments of debt than we actually had last year. Overall, as you can see here, the liquidity situation at Datwyler has further improved. Let's move on then to the ROCE development. The return on capital employed or ROCE for that dealer group increased to 22.5%. The ROCE development at Datwyler Group is influenced by recent growth investments at Healthcare Solutions, but also by the stable profitability of Industrial Solutions. For Healthcare Solutions, we see an improvement in ROCE to 26.4%. For Industrial Solutions, ROCE slightly improved to 17.8%. We expect a further increase to former levels in the years to come. Let me have a closer look into the capital expenditures, and many of you know that graph already. The capital expenditures in '21 were above the long-term average due to attractive growth opportunities. For capital expenditures, it is still our midterm goal to reach more or less the level of depreciation. However, we invest in attractive markets with long-term structural growth trends such as health care or with long-term contracts such as food and beverage. So 75%, and you see that on the right side of the slide of our expenditures are still assets under construction. The main project here is the second manufacturing building at our existing health care site in India. Production in this new building is scheduled for the summer of this year. Further assets under construction include additional production facilities for food and beverage at our plant in Schattdorf. Then we come to the dividend increase or the dividend proposal. This slide actually illustrates the dividend proposal to the Annual General Meeting. The proposed dividend of CHF 4.20, the bearer share represents an increase of more than 30% as compared to the previous year. With this proposal, the total distribution to our shareholders will amount to CHF 71.4 million. To conclude my presentation, I would like to give you an overview of the price increases that we see in the market. All 5 graphs here show the price development from beginning of January '21 until the end of January '22. On the left side, you see how the price for our main elastomer raw material EPDM increased by 60%. The price of aluminum rose by almost 50% and also various silicon grades increased in price up to 50%. On the right side, you see the electricity and natural gas price developments. Also these 2 energy stores showed a slight price decline in January, it is not certain where this trend will continue. The rising price increases for raw materials and energy already had a negative influence on our margin, especially in the fourth quarter of '21, and we presume that this will continue also into '22. With this slide to overview, I would like to hand over to Dirk, who will comment on the guidance regarding Datwyler's outlook for '22 and beyond. Dirk, I hand back.

Yes, Walter. Thank you very much for these financial insights. So now I will continue with the outlook, which is quite important and there this same condition of [indiscernable] to explain. Yes, let me start with the outlook for our mission. We are materialized ideas for a safer, smarter and more sustainable world. We live in a world of constant change. The demand for powerful and complex technological products is clearly rising. We support our customers to efficiently implement ideas and innovation from the idea to industrialization. We have a global presence and manufacturing footprint. This enables us to deliver consistent, high-quality products from local plants in 3 main economic regions of the world: Americas, Europe and Asia. And I can tell you, during such uncertain times such as the pandemic, our local presence took on a new additional value for our global clients. Our pharma business is specialized in primary packaging for injectable drugs. As a result of bottlenecks caused by the pandemic, we were contacted by many new potential customers. We aim to further tap into these potential revenue sources with targeted measures. In order to cope with the high demand and the projected growth, we are investing in the expansion of our production capacity. With the faster-growing share of high-quality and high-margin first-line products, we should be able to further improve our profitability. The market growth forecast and coveraging rates for the next 5 years. This is especially true for the emerging countries, and let me allow to spend some words here. Here, you see the so-called for merchant countries in the center of the slide. In these countries, the demand for up-to-date mitigation is growing over-proportionately. The reason for this license the strong structural growth drivers that are independent of economic trends and the COVID pandemic. Examples are the rapidly growing middle class asking for more modern health care. The increasing rates of chronic diseases such as diabetes or the use of injections that has a preferred method for administering medicines. Datwyler has implemented several strategic measures over the past couple of years to benefit from the strong growth in the pharmerging countries in the future. With the announced acquisition of Yantai Xinhui packaging, Datwyler will gain direct access to the rapidly growing health care market in China. Xinhui offers a modern plant with excess capacity. By bringing in our expertise, we will be able to significantly accelerate our sales growth in China in the near future. The closing of the transaction is planned in the first quarter. As regularly reported, we are doubling our existing Indian plant with the new hall. Production will start this summer. A couple of years ago, the Chinese health authorities introduced extensive regulatory reforms. Thanks to our early initiatives, we are market leader in component approvals for all application types in China. Parallel to investing in production capacities and component satisfications, we also invested in our customer support in the pharmerging countries. We have recruited additional sales and technical support specialists who work locally in the pharmerging countries. In China, we will have additional resources from the Yantai acquisition. Switch to the next slide. And here, you see our largest business unit mobility. Here, we are specialized in system-critical components for the automotive industry. We are well positioned to help our customers transition towards new mobility. Our strong market position is based on our co-engineering capability, broad technology portfolio and advanced production standard. All 3 aspects are crucial for our participation in new vehicle application with the scope of expanding our addressable market. The growth prospects of the automotive look promising in the next year due to the recovery from the pandemic. In summary, we will address new vehicle applications with an expanded portfolio and new technologies. We will exercise cost discipline and optimization in our traditional market niches and aim to move into attractive adjacencies. This slide summarizes our current main focus and the new additional focus applications in the car for the future. We hold leading position for system-critical components for brakes and emission control with more than 50% market share, which is you see on the left side. Here, we will continue to serve these applications. In the brake segment, we are successfully supporting the technology transition, and we are providing components for hydraulic boosters and brake-by-wire systems. At the same time, we are enlarging our product and technology portfolio to apply new applications in the car of the future. The main new applications include electrified powertrain, battery systems, fuel cells and vehicle interiors. In addition to new products and technologies, we also systematic targeting and winning new customers, which are [indiscernable] entries in the market like [indiscernable], There are 2 main technologies that will support our transition to the new focused application in the near future. Electroactive polymers and electrically and thermally conductive ETEMI materials. The EAP technology, or electro-active polymers helps realize multiple applications in the area of human-machine interaction and vehicle thermal management in electrified and hybrid cars. Electro-active polymers have several unique characteristics. They are noise and maintenance free and offer a minimal packaging size and no energy consumption, which is especially for electrified cars, very important. ETEMI stands for a material portfolio providing electrical and thermal conductivity and electromagnetic interference shielding. These functionalities are needed in the area of battery systems, electric and electronic housing as an advantage, our standalone solution allows to recycle battery packs. On the right side, you see some of our existing customer projects for application in the car of the future. Besides the earlier mentioned components for brake by wire, we provide housing and ceilings for advanced drive system systems, affordable gaskets for battery systems, and multicomponent parts for e-motors. Based on the current status, we are confident that we will be able to utilize the transformation to electromobility to increase our component number and revenue per vehicle. We will continue to focus on our strategic priorities in order to drive the successes of our organization. In 2021, we launched our enhanced sustainability strategy with 12 specific focus topics. I'm happy to share some highlights of our recent achievements in this area. As you may know, sustainability has always been a high priority at Datwyler. For example, we have been a member of the Human Global Compact since 2009 and have published a sustainability report in accordance with the global reporting initiative guidelines since the same year. At Datwyler, we don't just talk about sustainability. We also take actions. You can see some highlights of this proactive approach on this slide. In order to reach our vision of clean [ mortality] for Scope 1 and 2 by 2030, we have started to systematical procure electricity from renewable sources. The absolute amount of green power has more than doubled in 2021 and already accounts for more -- for some 38% of our total electricity consumption. In the graph on the lower left, you'll see that our relative CO2 emission per revenue unit has reduced for the fourth consecutive time. With regard to our water consumption, we were able to reduce the absolute and the relative figure for 5 consecutive years now. And also for the fifth time in a row, we were able to increase the recycled waste and present of our total waste. Of course, we still have some work to do to reach our sustainability vision, but it's encouraging to see that we make tangible progress. As mentioned several times today, Datwyler is now a focused company. In the next phase, we will concentrate on organic and profitable growth, leveraging the investments of recent and future years. To support our growth strategy, we constantly evaluate acquisition targets to strengthen our existing business and core competencies. The M&A priorities vary depending on our business units and the market is offering us several opportunities, but let me add some comments here with regard to our business units. Regarding health care, we have closed the geographic gap in China, and mobility and acquisition should open up new technologies and/or boost our transition towards electric vehicles. And the relevant market segments of General Industry business unit, we want to act as an [ consolidator ]. In the Food and Beverage business unit we will further leverage our installed capacity. However, I would like to emphasize once again that we will also be very disciplined regarding possible acquisitions and that the strategic fit must be given and not dilute to our financial figures. Now I would like to come to the next slide. Here, you'll see the tables with our midterm targets that we introduced at our recent Capital Market Day last fall. All our growth and EBIT margin targets for '22 to '24 are still valid. Looking at the '21 results of the continuing business, we overachieved the growth targets in both business areas and as a company. With regard to the EBIT margin, we exceeded the lower end of the target range for health care. In Industrial Solutions, the sharp slowdown in the automotive industry in the second half of '21 prevented an improvement of the margin. Price increases for raw materials and energy also negatively impacted margin development as Walter has shown in this graph. This leads me to my -- to the specific outlook for the year '22. We have started the new year with a high order backlog in all our businesses. Regarding Healthcare and Food & Beverage, new production capacities will become operational in the course of the year. The strong demand from our customers makes us confident that revenue growth should exceed the upper value of our midterm target range of 6% to 10%. With regard to the EBIT margin, we are a bit more cautious. As Walter explained, inflation and rising prices of our input sectors become a challenge. Despite this, we aim to achieve the lower value of our midterm target range of 18% to 21%. Price increases and the strict cost management should help us to achieve this target. If the price of our input sector should decline in the course of the year, then this would, of course, have a positive impact on our margin development. To conclude my presentation, let me summarize the 5 elements of our investment proposition. We focus on system-critical elastomer components, meanwhile, without compromise. We offer superior customer value based on our recognized core competencies. We have leading positions in markets driven by megatrends. We are dedicated to the land development and sustainable growth, and we have a track record of strong performance and financial stability. With that, I would like to end and thanks for your attention here. And now Walter and myself are happy to answer your questions now.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Serge Rotzer from Credit Suisse.

Congrats to your results in these circumstances. Probably the first question is on CapEx. You have been guiding CHF 120 million to CHF 140 million CapEx even increase at the Capital Market Day by CHF 10 million at that time. And now you have a CapEx run rate of CHF 100 million. Could you please explain to us what does this mean also on capacity? Or is it only due to the appreciation of the Swiss franc? And what does this mean for 2022, 2023?

Thank you, Serge, for your question. Actually, the Capital Market Day figures are in kind of the overall view still valid. So we actually have kind of ideas of up to CHF 130 million, always, again, investing actually in health care solutions when kind of the customer demand is there and also food and beverage. So that kind of general guidance did not change compared to the Capital Market Day. I think it's noteworthy to say we do those investments based on customer demand. And that kind of general rule does not -- did not change.

Yes. But still then for this year, the CapEx will increase by CHF 10 million to CHF 40 million. So this is CHF 140 million to CHF 180 million. Is this true? And point 2 is where had you stopped investments then in which environment or in which segment, which business?

Again, we invest in health care solutions, and we also invest in food and beverage. Obviously, I mean, those are growth investments. Then we have also kind of maintenance investments in the remaining areas. I don't know where your CHF 10 million comes from. But the general outlook basically is the same as we stated in the Capital Market Day.

Okay. I will ask in different way. Have you been affected by supply chain bottlenecks that you're not able to invest the money? Or did you really stop some investments?

No. Neither is the case. But many of our investments are actually not done within a month or a week. Many of our investments take some time. Take just as an example, our SAP investments. That's something that is not done within a few weeks. The same for, let's say, the bigger investments, as an example, Elephant, our project in India. That is something that actually piled up over the last couple of years. So that's kind of the environment we are moving in.

Okay. So then if you may add another question to the dividend also to holding cash back. Your payout ratio is now at 37% on continuing operations. And in the past and continuing operations was 52%, 46%. So you are declining your payout ratio steadily year by year. On the other hand, you are full of cash, cash showed the change from debt to net cash. What's the strategy here on the payout ratio? Or as you have also mentioned M&A or you need the firepower now in the short term? And in the past, you've always heard about China? Have been a new buzzword for us? What do you want to acquire?

Let me give it over to [indiscernable].

Yes. I think -- first of all, thank you very much to have asked for the question, and welcome to the call. I think when it comes to our dividend payment, I think for us, more important is the absolute figure and as you have seen, we have increased that by some 30%. So is a significant step forward. And it's our target even in the future to step-by-step to increase those absolute figures over the next couple of years. So maybe we should not focus too much on the payout ratio from that perspective. Let me say our dividend payment is independent of what we are having in front of us with possible acquisitions. I think we have a couple of ideas how we could spend the money what we have, let me say, in our pocket. But as I said before, we will be very testing what we and where we invest in the future besides the organic growth. So from that perspective, there is nothing that we have hold something back. But if you calculate the dividend based on, let me say, the continuing business, the payout ratio for the year is much higher than what you have mentioned here.

Okay. I think it was given. But okay. Then the last question, then I will leave the stage to my colleagues. It's about the guidance. You reiterated your midterm guidance. But at the same time, you have -- you made acquisition in China. We don't know exactly how much sales it is, but I guess, let's say, CHF 50 million, you will double the capacity by this year. So let's make it easy, to CHF 30 million and the CHF 15 million that's 1.5% growth to your existing sales numbers, so from 2021 and if you even double that. So basically, you have reduced your guidance for the underlying business. Is this true? Or are you too shy to increase the midterm guidance due to China?

I think as you know, I think the current circumstances, what we are facing with all the uncertainties, of course, we would like not to give a value which we maybe cannot hold at the end of the year. So first of all, the Yantai is not included in these figures. Then we will do that when we have finally the closing. And then we will communicate it during our half year result. That means in July this year. So from that perspective, it's up to you how you would like to calculate that, but you have the total year turnover with such a company. And that will not be dilutive to our EBIT margin. That is what I can tell you as well. That is -- I think that is what we have foreseen. On the other hand, as I said in my outlook, is very depending on how much especially the auto market will develop. We overall see currently that the first half year seems for our customers is more a challenging market compared to the second half of this year. Most of our customers are giving a more and a higher demand for the second half of the year. But maybe we'll learn something different in the next couple of months.

There are no further questions on the phone at this time. We now have a question from Sebastian Vogel from UBS.

I got 3 questions. The first one is related to health care revenues and COVID-19. You said, if I'm not mistaken, CHF 60 million you have seen in that regard for the full year 2021. Can you remind me how that was split between H1 and H2? And how do you expect that to evolve into 2022? Second question is on price increases given the raw material price increases you have seen. Can you remind me there, what have you done so far in terms of your own price increases? And how much has that already worked through your portfolio in that regard? And then last but not least, with regard to logistics costs, is that something you keep -- you have that in mind that it's also a bit of a burden for your margin. Can you a little bit elaborate further on this topic, that would be great.

Yes. Let me, first of all, start with COVID. We foresee as well for the next year, an increase in the turnover. That is what we have in our books. And we have no other indications from our customers. Even if we are looking into the year '23, that seems that is still increasing. However, I would not exclude that maybe a dip would happen. But so far, we can't see that. But we have to know as well, even let me say, in COVID would come, I'm sure that the top pharma companies and we especially as well could close this gap with our general plan for growth. I think I said that even during the last year several times when we talked about our long-term perspective. So from that perspective, I think I do not -- based on the information that we have in, we do not see any risk to the corporate plans for the year '22. With regard to the prices, of course, we have said already some measures in place. It's not only pricing it is as well linked to productivity and other, let me say, measures what we have in our company. We have so far implemented price increases in the lower single-digit range, which is huge percentage already executed. When we come to the logistic point of view, of course, yes, this is right that the logistic costs are increasing. But I have to say, if it comes to the logistics cost from us to the customers in most of our markets and our business units, sorry, the customers are carrying the logistics costs, yes? So I think we have our logistics costs from the supplier to us. But the customer side, most of that is linked to the customers' cost. So I think that is quite helpful during this time. Is that answering your question?

Two follow-ups, if I may, in that regard. With regard to the first one of the COVID, can you split the CHF 60 million to H1 and H2? That would be great. And with regard to logistics costs, how about availability. What is the availability of capacity on the logistics side constraining your business to some degree or at all?

We have, from the COVID we too would like to disclose what is coming in the first half year and the second half year. I think that is now -- that is from our side, it's not helpful. What we see with the logistics costs, let me say, maybe it's not directly logistic problem. It's more situation of a cutoff typically what you are having if we have, let me say, on the goods on the way to the customers. We can just bring that into our accounts when the goods are received and confirmed by the customers. And due to the logistic difficulties which we have worldwide from time to time, the transport system, we have a higher turnover of such products on board compared to previous years. So that will be visible for us than in this year. But nobody knows it will be the next situation by end of this year to 2023. So we have to see if that will be -- have a positive effect or will that be the same?

The next question comes from the line of Michael Inauen from Stifel.

I also have a couple of questions, but I may take them one by one, if that's okay for you. Just a follow-up on what Serge has on the guidance or what Dirk actually answered here on China. So if I understand it correctly, Dirk, you said 6% to 10% to the upper end of actually 10% growth or above the 10% growth does not include China. So it means China is basically on top of what you already guided, just that I understand it correctly.

That is correct Michael.

Okay. Perfect. And on -- just a quick question on the -- I mean, at the CMD, you gave a guidance for the continuing business that you now actually not completely reached. So you were a little bit below that guidance. Is that really -- is that really automotive-related and basically cost increase related that happened in -- have the same probably the last 2 months of the year. Is that you couldn't take any countermeasures probably to go to the 17% EBIT margin and to go to the above CHF 460 million revenue level. So it's really those 2 effects basically nothing else.

Yes. No, I think there is nothing -- is mainly that is what you said. That is absolutely correct. What we have slightly affected as that portfolio change in the last quarter in our health care business from first line to advance. Our COVID business is 80%, 90% linked to our advanced production line. And so if we have a higher value there, then of course, that have some influence to the total turnover and to the EBIT margin elsewhere. But all the 3, let me say, components here that was what, let me say, lead to a situation that we were below the target what we said during our September session.

And on the -- so I have just 2 remaining questions and then I'll stop. One is on the first line. So you just mentioned that you switched some capacity from first line to advanced due to COVID. But can you give us an indication, first line, how much percentage it now makes of your health care revenues. And we heard us from Lonza, they are very bullish on the biologics and biosimilar markets. So is that still something that we really have to be aware of that the growth will really come from first line?

Yes. I think I would like to disclose this first-line turnover. But what I can tell you is clearly -- that is clearly over proportional growth year-by-year. So we are absolutely happy with that. And that is what you can see in the financial figures on the EBIT margin that is very helpful here. I think that is from that perspective. So we are in line more or less with our internal targets what we have set for this first-line concept.

Perfect. And just a last one on Nespresso. I mean we have yesterday, Nestle reported their figures. They were actually pretty strong, of course. It's also visible in your Food & Beverage division. And Nescafe has -- I mean, Nespresso also launched Nescafe aluminum capsules now for the Nespresso system and they seem to be extremely successful already with these capsules grabbing some market share where they enter. So I was just wondering, [ Keto ] actually answered the question already to me, but I was just wondering, producing the Nescafe capsules is that also split between you and [indiscernable] or how does it work actually if Nespresso brings basically new capsule to the market? How can we think of it when you have a 10-year contract?

Okay. Maybe I can support you in such a way to understand what [indiscernable] if you look into the growth figures, what Nestle has presented last year --yesterday and you compare that with our sales growth, you can see a significant difference between that. Although we are on a much higher level, as I said at the beginning of around 20%. So we are clearly above that. And that is -- which I explained to you and all of you at some earlier meetings, we have decided to accelerate the growth. And therefore, we have decided to come in 2 phases of price reductions. One -- the first one was in 2020. And the last one was in '21. So from now onwards, it wasn't the -- let me say to the half year '21 -- so now from now onwards, I think the prices will be stable. With this price adjustment, we as well got, let me say, a higher market share. And that, of course, is now what is visible and the turnover. Now -- and that is what I always said. No. From now on, our absolute EBIT should now increase year by year, okay? That is what was the concept. On the other hand, we have a second customer, and his success is quite impressive. So that is what we see as well for this year. So from that perspective, I think we are having quite a successful combination for this year. So that means the growth rate what we are foreseeing here is not just coming from one customer or it's coming from 2 customers. And the capacity is mostly installed. We will have to adapt it maybe next year, depends on the outlook for the year '23 and '24. That's the actual situation. I hope that helps.

No, that's very interesting and helpful. Just one -- sorry, one last one. I know it's always the last one. I mean I was just wondering, your second client that you have and that you actually introduced to us at the CMD, maybe you cannot answer it there, but still, I was wondering how is it possible that Nespresso allows you to even serve that client? I mean, basically, it's a competitor, no.

Of course, every other company, which is, let me say, bringing coffee customers to the market is yes. But you have to understand such -- the other customer is not producing coffee, yes? -- that is capsule. [indiscernable] just producing coffee capsules and selling the capsules to the market. I think that is the point. And of course, that was always the question with our customer Nespresso should we have an exclusivity right? Yes or no. So finally, we decided not to have it so that we could go to the market. And of course, that is as well in their favor, and that is -- let me say, as well as a combination of the price adjustment, what we agreed with Nespresso, of course, is due to the higher volume what we overall have in this sector, so they can benefit from that as well.

The next question comes from the line of Christian Obst from Baader-Helvea.

I have a question concerning around the issue of capacity improvement utilization rates and [ start ] capacity. Can you give us some kind of an idea maybe again, so what is the actual situation in India as the time line? And what are your current utilization rate there? And what kind of utilization right do you think you reach your targeted margin. And this, again, is a question for the US pharma plants and the new installed capacity for the capsule plant in Switzerland. Is that possible?

Yes, partly. Let me start. We have not [ sold ] everything, but what I can try to explain this to you. In India, we have some delays. That's absolutely right, and more than what we have expected. But that is mainly not mainly is only linked to the COVID situation. And so our starting point for the production should be in the summertime. And then shortly of that, we should start as for the commercial. I think quite important here to understand that we will have not really a slow ramp-up. The ramp-up will be very fast. Due to the bottlenecks, what we have generated in India, we had to move some of our products to the US and to Europe. So currently, we have some of the products that we have foreseen, we are producing them in such regions. Of course, you can imagine to a higher cost level. Now when the factory is ready in the second half of the year, we will move such products back. And then, of course, this factory will get having, let me say, some further idle capacity, which we will use for organic growth as well in the coming years. So let me say that is what I can tell you [ here to India ]. Pharma, our pharma company in Delaware, I think that is where we're referring to. And we have another one that is in [indiscernable], which has covered a part of this business from India. We are here, let me say, on a production [indiscernable] on the production network. So that here, I think that is more important for us to balance out where do we produce which product which is the best benefit for us. So that is the reason why we started not to disclose figures per site. So that means when it comes to, as I said, to [ Automation ], so when it comes to the production capacity for our coffee business, most of the machines or equipment which we need for the next years, we have installed or ordered and the implementation will come in the next couple of months. that we would be able to cover the needs for the next years. Maybe if they are more successful than they have planned, we have to, let me say, to adopt that, but that we will see in the record of the next 12 months, okay?

Yes. But this in the -- as a result in the end, when you're moving your production from the US back to India and wrapping that up and you don't have additional costs there and optimized mix in the US at ramping up coffee in Switzerland should lead to a rising margins going into 2023?

That is what I said. I think I'm quite -- that is the reason why I believe that our long-term plan, what we have communicated, I think that we will be able to achieve that, yes.

The main risk there is that maybe there was some kind of delay also kind of a dip from the COVID side or.

I would say the main risk is currently the market development. So I think we are prepared. And if there are any issues in the market, of course, we need the market to sell our products, but that as a market point is not a topic that we are having any weak points [indiscernable] we are well prepared. There are still a few questions on the phone. I just thought we would actually move on to the written ones. And some of them have already been answered. So please move on.

The last question from the phone comes from the line of Daniel Koenig from Mirabaud.

I had 2 additional questions, the questions that I've written and that would be first Middletown. I remember there was always a statement for '21 that would be breaking even. Has that happened?

We do not disclose any figures for a dedicated plan, as I said before. And I said, we have a production network and for us, is the most important point to have the right setup for the individual sites. And we think that we need all capacities what we have currently, yes.

And then a question, I saw you had an [indiscernable] your presentation pack. I was wondering how much impact electricity, how much electricity are you consuming? And I'm just wondering [indiscernable].

Sure. Daniel, just let me take over. I mean, the impacts are twofold. On one side, it's actually the energy consumption or electricity consumption that we use for the whole production process, from mixing to molding, et cetera. And those are the figures that they presented or we also presented in the sustainability highlights on Page 34. So you see that, and you also see that in our sustainability report, it actually in detail. And on the other side, kind of the other impact is obviously the raw materials like EPDM, as I explained, are also getting more expensive because also energy is used to actually transform them to the states where we need them.

Yes, let's move to the writing questions. I think some of them have already been covered. Let me just go through. Dirk, maybe there is one. I would dare to ask you, are the plans for further acquisitions in more business areas on global regions. Are you looking for M&A opportunities. There is also another one a little bit going in the same direction from Richard [indiscernable] potential use of available cash. How does that look like?

Let me start with the acquisition. As I said, when we discussed about aggressive organic growth and supported by focused acquisitions. We have -- as I said, we have closed our gap in the health care sector. I think there is currently what I can see, not really need to acquire a further company. I think here, clear is that we are investing to, let me say, to support our long-term strategy. Whether there will be maybe an opportunities, we will have a look to that, but it's not clearly visible today. In the mobility, as I said, we will move forward with our organic plan. So that is our strategy is clear straightforward. We will have and we are -- looking to the market, are there opportunities which could boost our plan and forward interaction of electrification of cars, whether there are maybe products which will fit to our product portfolio and customer portfolio. There, we are in discussion with several companies as what we always are doing. And general industry, of course, there is a broad band of opportunities in the market. We have continuous discussions here. And as you know, for an acquisition, you always need 2 persons or at minimum 2 companies, which are willing to go forward. So there's a lot of discussions over the last year. Sometimes it takes some more time. And the food and beverage sector, I don't see a need for an acquisition. I think that is what I said. And we have a huge number of ideas. I think we would not just spend money. I think the money what we have in cash and why that describes that, of course, we will have a clear focus how and what we will spend, that we will be very disciplined with that. Then the next one, I would answer immediately. There's a statement in half year '21, we said that the revenue growth would be above CHF 1 billion to CHF 1.5 billion. What happened that we could not reach that. That's obviously the [indiscernable] revenue is actually missing. So that's the reason why. Then we are nearly there. There is a question of the ideas of, what happened between half year 1 and half year 2 because the margins and the revenue was lower than in half year 1. And there, allow me to respond in a way that we always said that the second half for the whole pilot group, be it health care, be it Industrial Solutions is actually normally a little weaker, a little weaker in the second half. The reason is, first of all, you have the summer months and the Christmas break. So in total, more or less a month of less revenue with the same cost structure. And then we also foresaw already in the half year presentation that there will be some price increases coming along the way. So this is more or less, I believe, what we also announced.

And then we are coming to an end here. Maybe, Dirk, there's a question, how do we see the COVID vaccines and the COVID growth going forward? How will that really continue growth.

I think I answered that already in my talk about the outlook in 2022 and 2023. [indiscernable] we should say something to that. I think we have a location that is absolutely right in the Ukraine, but we have taken all the measures so that would not influence our business, and that is a very small portion of our business, which is, let me say, in the very low percentage below 1%. So that is really not having a big discount influence here. Yes, I think with that, I think then thanks to all of you in the continued interest of Datwyler I think it's good to see that the COVID [indiscernable] let me say, how to handle with that, especially in Switzerland, more easy. And hopefully, we will have the opportunity in the next weeks to see personally without any mask. So from that perspective, I wish you a great day. Have a fantastic weekend and looking forward to see you in person as soon as possible. Have a great day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.