Dätwyler Holding AG (DAE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the presentation of Datwyler Annual Results 2023 Conference Call and Live Webcast. I'm Sasha, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Mr. Dirk Lambrecht, CEO; and Mr. Walter Scherz, CFO. Please go ahead.

Yes. Thank you very much for the short introduction. I would like to wish you a warm welcome to our Annual Results Conference 2023. I'm here together with Walter Scherz, our CFO; and as well Guido Unternahrer, he is Head of Investor Relations, and I think both of you -- both of them, you know very well. Yes, first of all, thank you very much for your interest in Datwyler that you are expressing by attending today. The agenda has chosen a format. Walter Scherz and I will be happy to answer any questions you may have after our presentation. Let me start with Slide #3 here. That is the Datwyler full year overview '23. And here, I'm summarizing the key financial figures for our company as a whole. We succeeded in maintaining our sales level despite an almost complete COVID business discontinuation. Customer inventory reductions and a clearly negative currency effects. We consolidated QSR, that means Connectors, business unit Connectors for 12 months for the first time in the reporting year in '23. Organic sales overall remained stable even when adjusted for the acquisition and currency effects. The lack of sales growth led to underutilization of our recently expanded production capacity, particularly in the Healthcare sector. We should also add one-off costs for restructuring measures and higher energy costs. All in all, these effects led to a temporary profitability decline. The EBIT reached CHF 120.4 million. This corresponds to an unsatisfactory 10.5% EBIT margin. The margin recovery in the second half of the year was not as strong as we had hoped. However, the higher EBIT margin in the second half of the year shows that our optimization measures are taking effect, and then we are bottomed out in the first half year of '23. The net result fell to CHF 63.8 million due to the lower EBIT and significantly higher financial expenses. I would like to emphasize that Datwyler is not a restructuring case. The measures implemented are aimed at optimizing our cost structures in the long term. At the same time, we are always ensuring that we maintain our capacity and expertise to handle the many new customer projects and do not jeopardize our medium-term growth potential. Moving to Slide 4. This slide shows our organizational structure, consisting of 2 business areas, Healthcare Solutions and Industrial Solutions, and the 3 group functions. The group functions strive our recognized core competencies and enable high synergies across all business units. Please remember, that our business units are structured and the companies that they are addressing the market and our internal functions are generating mostly of the synergy effects between them. The combination of our core competencies with regard to solution design, material expertise and operational excellence makes us a valued development partner for our customers. I will come back to that. This is reflected in the large number of new projects with existing and new customers that we acquired in the reporting year. Now we're moving to Slide #5. Let's discuss the business performance of the business area Healthcare Solution now. Healthcare Solutions offer high-quality, system-critical elastomer components for containers, syringes and delivery systems for injectable drugs. Our customers are the world's leading pharmaceutical companies and injection device manufacturers. Please, to the next slide. In terms of sales turnover, it's a almost complete discontinuation of the COVID business and the reduction in customer inventories led to a decline to CHF 469 million. This is clearly negative currency effects aggravated the reported sales decline. In organic terms, the decline amounted to 5.2%. Our CFO, Walter, will provide you with additional details regarding the sales development compared to the previous year later. The EBIT margin fell to 15.9% due to the underutilization at our recently expanded plants. The bar chart at the bottom left depicts the sales trend since 2016, including the inventory buildup at our customers in '22. For access with the Healthcare business development over several years, we compare the reporting year '23 with the last pandemic year -- pre-pandemic year 2019. To do this, we adjusted for exchange rates, the Xinhui acquisition and the low corporate sales in '23. This apples-to-apples comparison results in a 37.6% organic sales growth. This corresponds to a strong average annual growth and regular business of 8.3%. And we have, therefore, achieved our target range and exceeded the market growth over the years. Please move to Slide #7. Thank you. We are still with the Healthcare business here. Datwyler has been pursuing a growth strategy for several years, with the aim of increasing the revenue share generated by high-quality and high-margin products. To this end, we have systematically invested in expanding our global production presence, broadening our product portfolio and strengthening our market development and technical and scientific customer support, which is very important to keep this level because we would like to play a much more dominant role in the future. And that is what you have to pay, as in, for the entrance in such markets. The Indian plant will become the largest Healthcare site in the medium term, as we doubled the production area and the FirstLine upgrade in the recent years. We already employ over 600 people there. We are strengthening our competitiveness by transferring product lines from the European plants to the Indian plant. In the reporting year, we launched [ Ultra Shield ] a new film coating for Healthcare components. This makes us the first and only supplier to offer customers a choice between spray and film coating, depending on their requirements. We have significantly expanded our market presence in China by integrating Xinhui. The strengthening of digital marketing and technical and scientific customer support are also highly valued by existing and new customers. The large number of new projects shows that we are on the right track. Slide #8, please. We are now moving to the Industrial Solutions business area. Here, we offer as well system-critical elastomer components, but in this case for demanding applications in the markets of Mobility, Connectors, General Industry and Food & Beverage. Here, our customers are global innovation leaders and as well, market leader. Slide #9, please. In the 2023 reporting year. We consolidated QSR for 12 months for the first time. This led to a 8.2% sales growth. That means CHF 688 million despite the fact that we have significantly negative currency effects. However, even adjusted for the acquisition and currency effects, the organic growth amounted to 3.6%. Sales growth was driven by the 2 business units, Mobility and Food & Beverage. Despite a restrained economic development in China, Mobility was able to grow in line with the market average. Food & Beverage significantly outperformed the market growth, thanks to the close cooperation with successful innovation leaders. However, the Connectors and General Industry business units were affected by customers reducing their inventory, which is mainly focused on this mentioned business unit. The EBIT margin for the year as a whole was stable at 6.7%. The operational improvements and the positive effects of the restructuring measures implemented were more than offset by the one-off increase in energy costs in particular. However, the 7.5% EBIT margin in the second half of the year shows that the measures are taking effect and will further increase. '23 was marked -- sorry, Slide #10 here. '23 was marked by the integration of QSR, which Datwyler acquired in May '22 and has since managed as an independent Connectors business unit. The integration and the process optimizations are on the right track. As a result, the EBIT margin has increased continuously and sustainably to 10% -- around 10% for the '23 as a whole. Further optimizations and improvements will follow. Our target with these business units will remain. The mega trends for electrical connectors and the associated sealing components remain attractive. The business unit Mobility, here we are working successfully on the transformation to e-mobility. In the reporting year, we acquired leading electric vehicle and battery manufacturers as the biggest Chinese company in this field as a new customer. The project pipeline is developing well, and the proportion of projects for the electrification of vehicles was well over 1/3 of all customer projects acquired for the first time in the reporting year, while at the same time, we achieved a double-digit EBIT margin. We will sign one of the largest single orders with a leading supplier of air suspension systems for electric vehicles in the next few weeks in China. And we are also close to concluding additional orders with the innovation leader for electric brakes. The Food & Beverage business unit, we now have clarity on the new EU regulation on packaging and packaging waste. Packaging materials must be recyclable in the future. Coffee capsules made out of aluminum meets this requirement. A shift from plastic to aluminum is expected since the infrastructure and processes already exist for recycling aluminum capsules. This would unlock additional growth potential for us via our customer capsule. Yes. With that, I would like to hand over to Walter. Walter, it's your stage, please.

Thank you very much, Dirk. Welcome also from my side to the audience. Thank you for your interest in Datwyler. It's great that you are here. And I'm looking forward to present the 2023 annual financial statement. Let me start with the revenue bridge for the year under review. In organic terms, adjusted for acquisition-related and currency effects, Datwyler was able to almost maintain revenue in the year under review. However, the slight decline of 0.3% is made up of organic growth of 3.6% in the Industrial Solutions business area and, unfortunately, an organic decline of 5.2% in the Healthcare Solutions business area. Dirk has already explained the reasons for this, contracting sales -- or contrasting sales trend in the 2 business areas. The 2 companies acquired last year, which are QSR and Xinhui, contributed a further CHF 55 million or 4.8% as an acquisition effect. QSR and Xinhui have already been included for 8 and 10 months in 2022. And right now, they are included for the whole. The strengthening of the Swiss franc against almost all currencies reduced sales in 2023 by CHF 50.4 million or 4.4%. But right now, where does the decline in Healthcare Solutions come from? And here, I go over to the next slide. Here, you can see the corresponding sales bridge for Healthcare Solutions with the various influencing factors. The decline in COVID sales of CHF 52.7 million has shaped the sales trend in '23. Over in course of this year, we also saw the destocking effects by customers. As a result, we were only just able to maintain the volume of regular business with a decline of CHF 400,000. This lack of growth led to underutilization of our recently expanded production capacity. The positive effect of the price increases in the regular business of CHF 26.3 million was almost eliminated by the negative impact of the strong Swiss franc of CHF 25.8 million. Overall, reported sales in the Healthcare Solutions business area fell by CHF 51.3 million to a level, as you can see here on the right side, to a level of CHF 469 million. The COVID effect naturally hurts, and you see that also in our results. However, despite customers reducing their stocks, we have managed to maintain volumes in our regular business and implement significant price increases. This brings us to the EBIT bridge with absolute values that you see here on the screen. Healthcare EBIT fell by CHF 28.1 million due to the aforementioned underutilization and the unfavorable change in the product. Industrial Solutions business area was only able to increase organic EBIT slightly by CHF 1.6 million due to the temporarily high energy costs. The positive acquisition effect from QSR and Xinhui on EBIT level amounted to CHF 4.3 million. The strong Swiss franc reduced EBIT by an additional CHF 6.6 million or 4.4%. Overall, EBIT in 2023 was CHF 28.8 million lower than in the previous year, as you can see in that overview. We will see what this development in absolute terms actually means for the EBIT margin on the next slide. And this chart shows the development of the margin of the Datwyler Group and the 2 business areas for 2023 and the last 3 years. Developments at the company as a whole and in the Healthcare business area show how the unfavorable change in the product mix and underutilization of our capacity led to a decline in margins. The Industrial Solutions business area was able to maintain its margin, thanks to the positive performance of the BUs Connectors and Mobility. A significantly higher electricity cost at the Swiss plant and the Swiss plant primarily produces for the Food & Beverage business unit, prevented a stronger recovery in the EBIT margin in 2023. But this, obviously, we normalize in 2024, and we see already -- see that in our current figures. The lower margin in the 2023 reporting year is the accumulation of several temporary effects. We, therefore, remain convinced that the margin will recover significantly as soon as our customers have finished reducing their inventories and the environment normalizes. The improved margins in the second half of 2023, which we experienced, show that the measures implemented, the cost reduction measures, the optimization measures are taking effect and that the optimized cost structure is having a positive impact. And that margin of 10.9% is also the starting base for the year to come. This brings us to the overall picture of the income statement. And as always, I present to the income statement as a functional income statement, as you asked that in the financial statements. All these functions improved personnel costs, OpEx, depreciation and amortization, et cetera. So we saw functions with all the relevant items. The decline in profit figures reflects the underutilization of our recently expanded production capacities, which is reflected in the manufacturing cost of the products sold. This is compounded by the unfavorable development of the product mix and the higher electricity costs in 2023. The higher cost for research and development are part of the strategy to strengthen our core competencies. These investments are paying off through a large number of new projects with new and existing customers, and it all helps us in future. There are various reasons for the increase in administration -- general and administration expenses. This included acquisition effects, QSR, Yantai and also internal shifts from marketing and selling. Stricter regulatory framework conditions also leads to additional costs. One example of this is our sustainability activities, where all our sustainability activities, however, they already represent a competitive advantage in the market. I will explain the financial results and the tax rate on the next slide. But as a concluding remark, I would like to mention the result of the developments above and, therefore, the impact on the net result. That fell to CHF 66.8 million. This corresponds to CHF 3.93 per bearer share. On this slide, you can see the development of total net interest and financial expenses and the weighted average tax rate compared to the 2 previous years. In addition to the higher interest costs of CHF 14.6 million from acquisition financing, the QSR acquisition, the financial result always includes unrealized losses or gains on foreign currency hedges. In 2023, they had a strong negative impact on the financial results due to the strength of the Swiss franc. The group's weighted average income tax rate increased slightly from 22.1% to 22.5%. This is attributable to higher average results in high-tax countries. And this brings me to the balance sheet. On the balance sheet, or you see basically 2 changes, which affected the balance sheet structure. On one side, the asset side, we have succeeded in reducing trade receivables, accounts receivables, and also, inventories have decreased significantly due to the reduction in our safety stock. This actually enabled Datwyler to free up liquidity, and I'll talk about the free cash flow in a second. On the other side, the liability side, CHF 150 million bond repayable in May 2024 was reclassified as a current liability. This has led to a corresponding reduction in noncurrent liabilities. The equity ratio at the end of the year was 32.2%. This is actually an improvement compared to last year, but we also have to realize or note that the cumulative translation adjustments have been quite high and, therefore, affecting the equity negatively. Strengthening the balance sheet remains a very high priority for Datwyler. While reducing debt, we are focusing on countries with high interest costs. Here, we have the statement about free cash flow. We already saw that at the half year, that our cash flow statement has returned to normal compared to the previous year, which was actually influenced by the acquisitions. The prior period, as I said, was characterized by these 2 acquisitions and the resulting increase in debt. Cash flow from operating activities improved significantly to around CHF 195 million in 2023. As Datwyler has made upfront investments in the past years and can now significantly reduce the investments, we saw that already, free cash flow reached a level of CHF 136.7 million, one of the best figures in Datwyler's history. The reduction in net working capital contributed significantly to this. The chart on the right side of that slide shows the development of free cash flow over the last 5 years. When comparing with 2021, it should be noted that the divestment of Reichelt at that time had a positive impact of around CHF 40 million of free cash flow as a nonoperating effect. So if you're only looking at operating effects, we are really in a very good shape. And this development has made it possible to accelerate debt reduction, as I am pleased to show on the next slide. This shows the development of net debt on the left side and the structure of the external debts on the right side. Thanks to the strong free cash flow, Datwyler was able to repay external bank debt of CHF 94 million, even in a challenging environment, while keeping the dividend stable. We plan to maintain this rate of repayment 2024. Due to the temporary weakness in margins, the net leverage remained at [ 2.6 ] at the end of 2023. Datwyler is very confident that we will be able to continue to make substantial debt repayments in 2024. The basis for these repayments or these repayments is consistent management of the free cash flow and an improvement in the operating results. This is linked to an improvement in the net leverage ratio. On the right side of the slide, you can see the effective -- or the final bank debt now only amounts to CHF 52 million. And keep in mind, we started that amount with $175 million. So it reduced quite significantly, since the acquisition. On the other hand, the loan from our majority shareholder, Pema Holding, has increased to CHF 198 million as the sole purpose of Pema Holding is to provide economic support to the Datwyler Group, this loan offers a great deal of flexibility and is [ De Facto ] -- not de La Rue, but De Facto subordinated. With regard to the CHF 150 million bonds maturing in May 2024, we will inform you in due course about how we will structure the repayments and the refinancing. It will be kind of splits between repayment and refinancing, and preparations are already underway. With that, I hand -- I go over to the return on capital employed or the ROCE. The decline is the result of a double effect. On one hand, the average capital employed increased to around CHF 897 million as a result of past investments. However, this figure represents a peak as a reduction will now occur as a result of the development outlined above and in the previous pre-investments. On the other hand, EBIT decreased is already mentioned. As a result, the return on average capital employed fell to 13.4%. Looking into the future, the investments brought forward will become a double lever. Lower investments in the future will reduce the average capital employed and increase EBIT through economies of scale. We are, therefore, confident that the ROCE will also improve again to well over 20%. Here, the old or the well-known slide about the development of our investments over the last 6 [indiscernible]. The investments put forward will accelerate our medium-term growth. In the reporting year, we registered a total of CHF 53 million. This is almost 50% less than in the same period of the previous year and around 1/3 less than depreciation in the same period as you can see, in the 3 columns on the far right. At 3 -- sorry, at 4.6%, the ratio of investments to revenue is significantly lower than in previous years because Datwyler is coming out of a multiyear investment cycle. And that will also continue in the next couple of years. We expect kind of the investment level to be at the level of around 5% in the years to come. The bar chart shows how we have invested in the expansion of our production capacities in recent years. However, it is not only our infrastructure that is fit for the future, but also, our employees, systems and processes are fit for the future. The investments done in the past, particularly in the Healthcare sector, will ensure significant economies of scale as soon as customer destocking is complete and demand recovers. As you have seen, the Board of Directors is proposing a cash dividend of CHF 3.20 per bearer share and CHF 0.64 per registered share to the Annual General Meeting. As already explained, the strong free cash flow allows us to strengthen the balance sheet while keeping the proposed dividend stable. By maintaining the dividend, despite the temporary decline in profits, we are demonstrating that we are a reliable dividend payer and that the Board of Directors is convinced of Datwyler's medium-term growth potential. As you can see on the slide, the dividend can be paid entirely from net profit. And that means from funds, which are generated by our own operations. And it's also focused for the next years. Our free cash flow allows for dividend payments but also very important debt repayments. With that, I thank you very much for your attention. It was a pleasure. And with that, I will now hand over to Dirk for the outlook, please.

Yes, Walter. Well done. Thank you very much for the -- these comments, and now I would like to proceed with the outlook for the year '24. May I ask you to move to the next slide. As you already have -- as you already heard several times today, Datwyler is in a strong strategic position. And we are coming out of an investment cycle that will allow us to keep the investments low in the coming years. At the same time, we have integrated 2 acquisitions, QSR and Xinhui, which are both active and promising growth markets. Thanks to our recognized core competencies, we are winning many new orders with existing and new customers. And especially the number of new customers this year is going to a record level. The focus for the future is, therefore, clearly on promoting profitable organic growth by scaling the business model and production capacity. At the risk side, we will have the means to strengthen the balance sheet. We want to increase our penetration of markets and get closer to existing customers. We will benefit from economies of scales, thanks to our early investments as soon as the destocking process comes to an end. We want to expand our addressable markets with our high-quality products. When looking at the Healthcare and Connector business units, here, we want to expand into new regions in a targeted manner. The new Xinhui platforms is the basis for our Healthcare, while Datwyler's European presence is the springboard for Connectors. I'm also convinced, thanks to our strong innovation pipeline, we will be able to increase the sales proportion accounted for by new products in the future. One concrete example this year is the electro-active polymers and stacked construction. Move to the next slide, please. Our strong strategic position is complemented by the promising megatrends in the market segments in which we operate. Here, you can see the long-term growth drivers from which we are benefiting with our business areas. In the Healthcare sector, it's a combination of social, medical and regulatory trends such as the aging of society, the increase in chronic diseases or injections as the preferred form of administration. In the industrial market, it's more a technological progress that is unlocking new application and, thus, growth potential. This includes electrification, connectivity and automation. But sustainability is also gaining importance and leading to new needs in the future. The lower part of the slide shows independent market forecast for elected product and market segments. In addition to above-average growth potential, our market segments are characterized by high barriers to entry. Worth mentioning are, for example, the long learning curve and experience, high investments and regulations. So as I can say that even in the last years, we have not seen any significant new market and trends in our markets from competitors. The next slide, please. We are looking to the future with confidence based on our strong strategic position, the long-term growth drivers and the large number of promising new projects with existing and new customers. I'm convinced that our medium-term targets are achievable. In terms of sales, we are aiming for a 6% growth per year. Due to the restrained subdued economic environment, the lower end of the target corridor is more likely to be achievable in the near future. We are aiming for an EBIT margin of between [ 18% and 24% ] in the future. The lower threshold should be reached for the first time towards the last quarter of '26 financial year. The aforementioned economies of scale and the elimination of the recent negative special effects will make this possible. When we look back at the last 12 years, then you will see that we have achieved continuous profitable growth, even under difficult circumstances. Next slide, please. In the short term, there are margin drivers. However, there is also a number of short-term risks that call for caution. The margin drivers includes, in the short term, the lower energy costs, sustainably optimized cost structures, the ongoing recovery of the business unit Connectors and economies of scale through better capacity utilization across the organization. Short-term risks include geopolitical uncertainties, a continued strong or even stronger Swiss franc, continues destocking by customers in the second half of the year and recessionary trends. However, taking the opportunities and risks into account, we are cautiously optimistic for '24 as a whole. In terms of sales, we expect an organic growth in the low single-digit percentage range. And we are aiming for an improved operational EBIT margin, as Walter said, starting from the EBIT margin of the second half of last year of around 10.9%. Yes, the first half of '24 is likely to be weaker and the second half stronger in contrast to our normal seasonal performance, and that has to do with the destocking effects, which we currently see. That is what we see today. Yes, please to the next slide. Besides everything we do and strive for at Datwyler, our impact on the environment and society is important to us as well. On the other hand, we are also affected by environmental, social and regulatory developments as a company. At the heart of our sustainability strategy, we have 12 focused topics. These are structured according to the globally established ESG concept: environmental, social and governance. Each topic bundled activities and projects and includes clear responsibilities with measurable targets for effective management. We have continued to drive forward our sustainability activities even in a difficult environment for the benefit of our stakeholders. This is reflected, among other things, in the EcoVadis Gold Standard. EcoVadis places us in the top 5% of more than 100,000 companies they analyze. Datwyler joined the UN Global Compact back in 2009 and has since published a sustainability report every year in accordance with the guidelines of the Global Reporting Initiative, GRIs. The next slide. Here are a few current sustainability highlights. We have succeeded in reducing our CO2 emissions per sales unit for the 6 times in a row. We were able to reduce relative CO2 emissions by 4.8%, taking currency adjusted sales into account. This is a result of the measures we implemented to improve energy efficiency and the switch to electricity coming from renewable sources. 38.3% of our electricity is already CO2 neutral for selected products and customers, who offer an analysis of the CO2 footprint of products. The health and safety of our employees is also important to us. A global working coordinate initiatives and systems for health and safety in the workplace. For example, we have succeeded in reducing the number of days lost per employee due to work-related excellence and illnesses. By means of the new human rights guideline, we are raising awareness of human rights in key processes. Employee engagement was also above the industry standard in the latest employee survey. And we are quite proud that we achieved, in Switzerland, the rank #3 in the global employer report. And for the first time this year, selected sustainability information was subjected to a limited review by the auditors. Yes, this brings us already to the last slide. Now after 18 years on the Datwyler Management Board, of which 7 years as a CEO, I'm convinced more than ever that of the 5 elements of our value proposition, which you can see here, we still focus on our system-critical elastomer components without any compromises for time now. We offer superior customer value based on our recognized core competencies. We have leading positions in markets driven by megatrends, and we are committed to talent development and sustainable growth. Even that will become more and more important, especially in Europe, when we are thinking about that the [indiscernible] will now over the next years moving out. And we have a strong performance and financial stability as a track record over the years. Yes. With that, I would like to announce as well the new colleagues here. I think you have already heard about that Volker Cwielong will join as the new CEO by the 1st of April '24. We already have here started the onboarding process so that Volker Cwielong will have a chance in the next couple of -- at the end of the month of March, a deep insight of our organization so that he has a chance at a very good start in April '24. And then you already have heard about that as well that our CFO has decided to go, and we have won Judith van Walsum. She is currently CFO at Roche Diabetes Care. She was in the last 2 years in the -- member of our Board. And so she will bring some further competencies into our Management Board with the direction of Healthcare pharmaceutical business. I'm absolutely convinced that Volker Cwielong is a competent successor, and you will see that in the next and coming months when you have a chance to talk to him. And I would like here to use as well the opportunity to thank Walter for his great contribution to the Datwyler Group. He has changed, especially when it comes to financial and as we call it, service center in the last year, which he has built up, and he was always a competent and very generous person, which always help our people and internally to be able to achieve our targets as best as possible under the circumstances. Walter?

Thank you.

Yes. With that, I would like to thank you for your attention, and Walter and I am now looking forward to answering your questions, if there are any.

[Operator Instructions] The first question from the webcast is from [ Celina Hart ]. What is your plan regarding the mature of bond in May 2024? Will you refinance it with a new bond issuance? Or what is your objective?

I will take that over. Thank you very much for that question. Yes, we are -- the Board of Directors, we are in close contact. Obviously, the bond issued is one of the options. And the idea currently is that we would -- if we go that path, we would repay a fraction of that bond and refinance the remaining fraction. So we are already starting to look into options. We do not want to kind of have a solution-only [ bay ]. We assume that we'll have a solution in the coming weeks.

There is also another one, if I may -- yes, right. I would take that over, Walter.

Is there an intention to take acquisition opportunities in the future, Dirk.

Yes Now, I think that is a clear answer in the near future that is not foreseen. We have now already mentioned at the beginning of the presentation that now we will focus on the free cash flow and as well via low investments. Last -- the best way to optimize the scale -- economy of scales was our -- is our production capacity. I think that is a strong focus. When we have a look to our portfolio of production and in the business unit, I think we are well positioned. So from that perspective, there is not a need to accelerate for the existing business unit. That means strength with further acquisitions. So from that perspective, I don't see a need for the coming years.

The next question is from the phone from Thielmann Benjamin with Berenberg.

I have a couple of questions. Maybe I can ask 3 and then go back into the line. First question would be regarding growth in North and South America. For -- if I look at the numbers, growth here has been declining fully by roughly 5%. But if I adjust it by QSR, your organic growth was probably minus double digit. Maybe you can give a little bit of color what happened here. Second question would be regarding growth in General Industry and Connectors, not on a full year basis, but in H2. Both business areas have been a little bit under pressure. Maybe you can describe a little bit what has happened here. And then maybe the third question in terms of margins. You have quite an ambitious midterm guidance in terms of EBIT margin. What improvement in the margin can we expect in 2024?

Yes. Benjamin, thank you very much for your questions. Let me start with the first one. And maybe, Walter, you will take over some information to the third question, okay? So yes, Ben, when we are looking to the growth in North America and especially as we mentioned as well China, I think in North America, we have, on one hand, the situations that, especially with our G&I business, we have seen a decline in especially in the second half of the year. However, we can see now there will be a slight recovery, let me say, from the second quarter of this year. In China, we will see as well [ FX ], which is linked to the Mobility market. But however, I believe there will be as well a stronger recovery. And as I mentioned before, we have won really great projects for the future, which will come in partly in 2024 and then and [indiscernible] in '25 and '26. And of course, in North America, what you have to consider as well is the situation that we have a huge loss of COVID business in North America, and that is for sure as well a big portion of that is similar to what we have in Europe. Yes. I think there is, as I already said, the growth in GI, and Connectors already said about GI. So that means that we are facing due to the fact that we are a supplier for the industrial sector, a couple of our customers having as well are recognizing the destocking effects of the market. And so therefore, their decline -- but as the decline with them is currently visible. However, I would like to express here, we are not losing any market share. That is in line with the effects which are temporary from the market. The business unit Connectors has, let me say, had a good start in the year. And then later on in the second half of the year, as some of our customers have seen a stronger decline, but mainly as per we expect for the destocking effects. So it's difficult to say when that will be over, so from that perspective, what you can see is as well in line with our forecast. There are so many uncertainties currently. So it's quite difficult to state and especially this effect of the destocking will be over. And on the other hand, we have as well a couple of influences from the currencies, and all different currencies, it's quite difficult to expect what were coming out. Maybe Walter, have something to comment?

Yes. Thanks a lot, Benjamin. When we talk about the margin, right, we had kind of the lowest point at half year with 10% of EBIT margin. In the second half, as you have seen, we have reached 10.9%. And this is a starting base also for the guidance for 2024. So that will be an enhancement in the 2024. Dirk gave you before kind of what are the levers with electricity costs, with operational performance, operational measurements we have on Connectors and Mobility and Other business and -- units. And the midterm guidance as such remain valid. We believe that will be reached by end of -- or at least the lower end of that guidance, will be reached by the end of 2026. And of course, I'm with you. That also depends on normalizations. Dirk gave you kind of an insight, where we believe that maybe quarter 2, maybe second half, we'll see kind of the final say or the ending of the destocking effect, and we'll actually see a normal development, normal growth with large scaling effects from the second half. I hope that answers your question, Benjamin.

There's an additional question from the live chat. Also on the midterm targets. The questionary saying that we have not changed the midterm targets. They look increasingly difficult to reach, especially the margin target. And he's asking if you -- we have not thought about postponing or reducing those targets. It would certainly help the incoming management to fulfill their targets.

Yes. Thank you, [ Rich ], for this question. And of course, we have discussed several times internally, whether we should postpone in that. What we thought about is that we said I would like to wait the year of '24. And then by end of '24, let me say, the recovery of the market will not be becoming more visible. And we have no more clarity about the new ramp-up of the several product lines, which are coming into our portfolio. Then, of course, we have to think about change in the outlook for the future. But I think that is as [indiscernible] for Volker Cwielong here to have a look to that during the course of the year, and he will come out by end of the year with his assessment how we see that for the future. That is what I asked when I talked with him because we already had a lot of talks in the last weeks you can imagine. So -- but he knows not our company so far. So I think we should give him the time to understand the company, and then he will come back with his assessment for the future. So far, if we see, let me say, a recovery becoming better visible and coming in, in [ 2025 ] latest, then still, we believe some margin will be achievable. Yes.

There's another question. Could you give us an indication of how much COVID sales do you have in the last year? And I think I can answer that. That was a little bit more than CHF 55 million in total.

Last year it was CHF 7 million.

CHF 7 million, it used to be -- sorry, I was thinking about where are we coming from. We still have a small portion of CHF 7 million. We were coming from a little bit more than CHF 55 million, as you can calculate, right?

From the year before. Thank you very much, Walter. And then of course, having said that, the CHF 7 million was more or less all in the first half year. So that means in the second half year, even if you compare then our risk side without totally without COVID, it's giving as well a better view to what we can achieve here [indiscernible] further increase in the future.

Yes, moderator? There is another question, I believe.

We have a question also from [indiscernible]. Do you want me to read it?

We have covered -- Okay, sorry. The question is QSR was not EBIT profitable at the time of the Capital Market Day. Is it profitable now?

Yes, this statement is not correct. QSR was, as I said as well in the last year profitable in the double-digit range. So from that perspective, we are striving forward for further increase in '24, and the target we already have announced before. So that we would see further steps forward during the course of '24, that is, let me say, so far, we are more or less in line with our improvement plan.

We have a follow-up question from the phone by Benjamin Thielmann with Berenberg.

Maybe one more question from my side. Could you give us an indication at what level are utilization rates right now in your Healthcare Solutions business area?

I will not give you a detailed figures about that. What I can tell you that according to our expectation, there is no significant investments needed for the next 3 to 4 years. So that means that is what we believe currently what we -- with a normal market range, and you can calculate them back when we are achieving the 8% that should be at minimum 3 to 4 years.

And there's another question in the live chat. Do you have an industrial comment on Novo's acquisition of Catalent. I know Catalent are not a direct competitor, but is this an opportunity or a threat for your business?

I think overall, Catalent, let me say, we -- of course, we are in discussion with all the customers. I can't give you any details here. Catalent is not a direct competitor as you say. So from that perspective, that is opportunities for us for the future.

[Operator Instructions].

So we do have another question in the chat. And this would be like can we take the stable dividend as a positive sign from the Board for the future?

Yes, absolutely, correct. And as Walter said in this presentation, I think we are convinced that we can keep that for the future. And of course, it's always our plan that we are constantly will increase the dividend payout in absolute, not percentage-wise, that is not -- that we will have always in the future will pay out 80%. Now of course, it's our clear goal to keep a dividend stable or with a slightly increase. Having said that, of course, we would like to focus as well on the cash flow that we are able to reduce our debts for the next coming years. That is a clear target.

Okay. One more question is about the restructuring costs in which dimension were they in 2023?

Walter, would you like to take over?

Yes, it was the amount of single-to-mid million Swiss franc amount. And it's -- if that's not the question, but also was it for which business. You can see is more or less both with kind of certain elements, strength in Industrial Solutions. And when we talk about where is it second half or first half, the majority actually occurred in the second half.

Okay. We have more questions in the live chat. What is your expectation on the pricing in 2024? I understand on customer side, can the pricing compensate higher salary costs?

From that perspective, we already have started with the price increase by the end of the last year, so that we will see as well the effects of this price increases in '24. And of course, we have a regular process that we are moving in this way forward that we are constantly optimizing our pricing to the market. And of course, that depends as well about the quantities what we will face in the near future.

There is another question. Why is Mr. Scherz leaving the company?

Thanks a lot for the question. I actually heard that question today quite a few times. What -- in my kind of professional life, I'm 64 years right now and 12 years with Datwyler -- 46, sorry, 46 years and 12 years with Datwyler. And for me, it's really the kind of -- yes, well, the decision whether to continue for another few years or whether to start something very fresh with a lot of enthusiasm, and I decided for the second one. But I just have to say, Datwyler is a great company, and I wish all the relevant people a lot of success, and I'm very much convinced about the success of Datwyler.

Yes. Thank you very much.

Okay. See that we have no further questions, then I would like to thank you very much [indiscernible] Datwyler, and I'm looking forward that [ Volker ] in the future will take over the calls. So from that perspective, thank you very much for your interest. I'm looking forward for your interest as well in the next years to Datwyler. Have a good day. Thank you.

Thank you very much. Thanks all for your interest. Bye.

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