Dätwyler Holding AG (DAE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Dätwyler Half Year Results 2024 Live Webcast. [Operator Instructions]

Hello, participants. It's a pleasure for me to welcome you to our presentation of the Dätwyler Half Year Results 2024. With me today is Judith van Walsum, our CFO; and Guido Unternahrer, our Head of Investor Relations. In addition to the participants here at the SIX ConventionPoint at Zurich. I would also like to welcome 40 participants who have dialed in, in the live web stream of our conference. These participants have already received an introduction from the operator, how to submit question via the chat function for the Q&A session at the end of the presentation. First of all, let me thank you for your interest in our company. I'm proud to guide you through this presentation for the first time in my role as CEO of Dätwyler together with Judith van Walsum. As you can see from our agenda in the next step, I will update you regarding our business performance of Dätwyler during the first half of 2024. For the review of a more detailed financial perspective, I'll hand over to Judith. And after having shared the outlook of our business with you, we will close the presentation and start the Q&A session. Before we go into it, as this is our first presentation in our new roles, let me give you a short introduction. And being a true gentleman, I'll start with our new CFO, Judith van Walsum. Judith brings in not only a remarkable educational background, including a PhD from the renowned London School of Economics and Political Science, but as well an impressive track record from an outstanding professional career. Just to mention the last 20 years, at Roche in her last role, Judith served Roche Diabetes Care as CFO and Head of IT. She has been a member of the Dätwyler's Board of Directors until 2024. And we are pleased and excited to have Judith on board as CFO as from first of June 2024. I took over the role as CEO of Dätwyler as from first of April this year. As a mechanical engineer and MBA, I look back on a professional journey of more than 20 years in different management and leadership roles within the industry with a major in automotive supply, but I could learn a lot about different markets, different products and different technologies. In my last role as COO in the Eberspächer Group, I led the Purem by Eberspächer division. Judith and myself are looking very much forward to working with you. And now let's go into it. My start as Dätwyler CEO happens in quite a period of uncertainty and volatility in all markets. The global economic development was generally weak in the first half of 2024 and ongoing political tensions and geopolitical disruptions and recessionary trends negatively impacted the customer sentiment in all markets and particularly in our business-to-business model. The further strengthening of the Swiss franc has also a negative influence on our results due to the translation effects. However, let me add that for many years already Dätwyler fosters a natural hedge with revenues and costs in the same currencies. It is an extraordinary situation as Dätwyler being structured in a way that it's healthcare and food and beverage segments would normally smoothen more cyclical branches such as general industry and automotive. This time, we experienced a combination of one-off after pandemic effects in healthcare and a substantial impact of weak markets on several segments within our Industrial Solutions business area. However, Dätwyler's diversification across several markets, it's also paying off in the current market environment. Our revenues decreased by 5% to CHF 572.5 million. Adjusted for negative currency effects, this translates to a decline of 2.4% versus the half year 2023. A 5-year revealed -- a 5-year view reveals that the reported revenue of the current business has grown at a CAGR of 3.6%. However, adjusted for negative currency effects, this revenue CAGR amounts to 6.5%. Despite ongoing underutilization at several production sites, we succeeded in increasing our EBIT by 11.6% to CHF 67.5 million. Currency adjusted, the increase stood at 15.3%. And as a result, the EBIT margin improved by 180 basis points to 11.8%. Dätwyler was again exposed to several weak markets and low volume demands in most businesses during the reporting period of half year 2024. For instance, delayed volume growth in e-mobility applications, low demand in the oil and gas sector, and as mentioned before, the ongoing destocking in healthcare. The improvement in profitability was driven by optimized cost and profit structures by price adjustments and lower energy costs versus the previous period. Due to the higher EBIT, our net result increased by 20.2% to CHF 38.6 million. The net result per share increased by CHF 0.38 to CHF 2.27. Judith will provide you more details on our revenue and profitability development during the financial deep dive. In the global healthcare market segments of primary packaging for injectable drugs, Dätwyler holds a strong #2 position. For some years already, Dätwyler following a growth strategy in its healthcare business, which aims to increase the share of revenue generated by high-value products for modern injectable medicines. Dätwyler has systematically invested in the expansion of its global production footprint and in a wide product portfolio as well as in market development and technical and scientific customer support. Since beginning of 2023, the market is characterized by low demand due to the destocking of our customers, which is still ongoing. As I've already mentioned, this is an exceptional situation due to the post effects of the COVID pandemic and the long-term growth drivers, however, are still valid. As a result of the underlying market conditions, our healthcare revenue decreased to CHF 230.7 million. Adjusted for currency effects, this equates to a decline of 6.4%. The prior year period still contain CHF 7.5 million revenue with components for COVID vaccines. A 5-year comparison with the pre-pandemic year 2019, shows a CAGR in reported revenue of 2.7% and adjusted for the strongly negative currency effects, the revenue CAGR amounts to 6.5%. In other words, in the first half of 2024, the currency-adjusted revenue of the Healthcare Solutions business area was around 35% higher than in the first half of 2019 before the COVID pandemic. And just as a reference, the 5 years FX versus the U.S. dollar is minus 9.7% versus the Euro, it's 11.9% and versus the RMB, it's around 16%. So Swiss franc is a very strong currency. And however, this is at least influencing our reported figures in the consolidation. Despite lower revenues and the current underutilization of production capacities, we have succeeded to keep the EBIT margin at 15.4%, almost stable compared to the prior year period. A slightly improved product mix, consistent cost management and operational improvements could particularly offset the effects from sales decline. In absolute terms, our EBIT decreased by 10.6% to CHF 35.6 million in healthcare. The four business units which together form the business area Industrial Solutions recorded different demand and revenue dynamics in the reporting period. The market for passenger vehicles is our second most important market is trending side weights with a low expected growth in 2024 of 0.9% to around 91 million produced light vehicles globally. And this is a little bit more than the pre-pandemic level on the global vehicle production. In the Connectors business unit, we achieved further operational improvements in our production sites, and this enabled us to largely compensate for the negative effect of lower revenue due to the slowdown of the expansion in the e-mobility market, particularly. The General Industry business mainly suffered from a weak oil and gas industry in the U.S. and lower demand for products from some large customers in Europe in their particular markets. We have further optimized our production concept and reorganized product lines within existing plants. This will certainly improve our profitability as soon as the demand rises again. The food and beverage business area -- or business unit, I'm sorry, grew significantly faster than the market average. Thanks to the strong positioning of our customers. The new EU regulation on packaging materials underlines the importance of aluminum as material of choice for single-served coffee capsules and recycled aluminum equals paper capsules in terms of ecobalance while having significantly better functional properties. Revenues slightly declined to CHF 343.4 million in Industrial Solutions. Adjusted for currency effects, the business area achieved even a small growth of 0.2%. During the 5-year period, again, we've reached a CAGR of 4.3% for the reported revenue numbers and 6.5% for the currency-adjusted numbers. By consistent cost and pricing management, improved productivity and energy cost levels Dätwyler was able to increase its operating profit by CHF 54.1 million to CHF 31.9 million. Adjusted for currency effects, this corresponds to an increase of 60.4%. The EBIT margin increased accordingly by 340 basis points to 9.3% from 5.9% in the previous period. The Americas and Asia's share of total revenue decreased due to a temporary slowdown in e-mobility and oil and gas markets. At the same time, the share of revenue in Europe increased due to the strong demand from our European customers for single-serve coffee capsules. The mobility business unit was able to maintain its revenue, rather stable in a weak market environment at CHF 130 million. Food and beverage succeeded to increase its revenue by more than 10% to around CHF 101 million. And in connectors and general industry, the revenues declined as of the before mentioned issues to CHF 74.8 million and CHF 37.8 million. In the first half of 2024, we've acquired new projects with existing and with new customers in all business units. The mobility could gain new business wins with large share in the e-mobility segment. For applications involving, for instance, air suspensions brake systems, powertrains and further strengthen its pipeline for vehicle battery components. This applies to all three major economic regions, Asia, Europe and Americas. In our BU connectors, 30% of our new business wins will be used in mobility, high-voltage applications. In General Industry, we could win new projects in the area of water supply and renewable energy. One of our customers in Food and Beverage has requested a capacity extension in our facility. Our pipeline for new projects in healthcare solutions is growing over proportional with high-value products. And more than half in terms of project numbers, and even more in terms of the prospective revenue share. And this shows clearly that our strategic investments in the first-line plants were right. Encouraged by this, we're driving forward our growth initiatives in the healthcare area and the transformation to e-mobility with high priority. We are continuously developing our sustainability measures. The globally recognized rating agency EcoVadis awarded us the platinum standard for our sustainability performance for the first time in the reporting period. This is the highest standard available and places Dätwyler among the top 1% of more than 130,000 companies from 180 countries that are rated by EcoVadis each year. Moreover, Dätwyler has committed by the end of June 2024, to having its efforts to reduce its environmental footprint validated by the science-based targets initiative. The SBTI commitment and the EcoVadis ratings are highly important to our customers especially in the healthcare industry. We make powerful progress in our next generation of technology platforms. Examples of these include soft dry electrodes for wearable applications and electroactive polymers. Under the brand name SoftPulse, the electrodes can be used for easy, comfortable and long-term monitoring of biosignals like brain signals, cardiac activity, skeletal muscles and eye movement, for consumer as well as for medical applications. Thanks to the low impedance and dry use. SoftPulse is perfectly suitable for applications on the head, on the body and in the air. In the wearable industry, smart wearables are expected to have massive potential since the launch of smart watches. Many big companies and start-ups are exploring business opportunities in this field and are looking for possibilities to integrate additional sensors in the earbuds. First examples of smart hearables are coming in the market from devices measuring your focus while driving a car to highly sophisticated smart hearables, able to control a device like a mobile phone or a wheelchair and this hands-free and voices. For the electro-active polymers, we currently are in midst of our industrialization phase. This new generation of actuators are characterized by a large and fast stroke low weight, low mechanical complexity, simple integration, low energy consumption and an intrinsic sensor technology. The very first industrial scale pilot production line will become operational in the second half of 2024 in one of our facilities. The stacked electro-active polymers constitute an interesting alternative to conventional rigid actuators. They can be used as actuators and sensors in multiple industries such as automotive, industrial goods medical technology, smart homes and for various fields of applications. We are currently working with several customers from different industry. Judith will continue now our presentation with a focus on our financial review for the first half of 2024.

Great. Thank you, Volker. Warm welcome also from my side. It's a pleasure to be here, and thank you for your interest in Dätwyler as an organization. I would like to take you through the whole year numbers, and we start with the group revenue. As you can see on this slide, we have a bridge of the development of the group revenue between on the one hand side, half year 2023 and half year 2024 on the other. There are 3 developments, I would really like to highlight. First of all, our organic growth. So the FX adjusted growth amounted to minus 2.4%. As Volker already mentioned, this reflects stable sales development of Industrial Solutions and a reduction in sales of minus 6.4% organically versus prior year for Healthcare Solutions, reflecting, obviously, the reduction in demand as well as the resulting undercapacity utilization in that business segment. Second point, for the first time since 2022, you will actually not see in our numbers, the positive impact of acquisitions that we have seen in previous years. And the reason is quite simple. The two companies that we acquired in 2022. So QSR, our connectors business and a Japanese -- a Chinese company called Yantai Xinhui packaging solutions in the pharma segment were already fully part of our reported results by that time. Then third, last but not least, when we look at the strength of the Swiss franc, you can also see that this has an unfavorable impact on our overall results by CHF 15 million rounded. Overall, our sales amounted to CHF 572.5 million, which is a decline of 5% versus prior year in reported currency. When we look then at the EBIT, you can see from the bridge here that our EBIT is improving by CHF 7 million in absolute terms. Again, when we look first at the FX-adjusted growth, then we see a 15.5% -- 15.4% improvement. Healthcare Solutions was not able to compensate fully for the decline in volumes and is obviously gone down by CHF 3 million in their EBIT. I will explain a bit further at the next slide. Industrial Solutions, in contrast, was able to compensate for the weaker markets through cost improvements as well as productivity measures, resulting in a CHF 12.5 million growth of EBIT or a 60% improvement year-over-year. Also, our EBIT was negatively impacted by the strength of the Swiss franc resulting in a marginal reduction in EBIT of CHF 2 million. When we look at the total, however, group EBIT improved by 11.6% versus a top line that was obviously more challenging. The next slide shows the development of the margin. And I would like to spend a moment on this slide because it tells the Dätwyler story really well. What you can see is in the bars, the absolute EBIT development between 2020 and 2024 half year and in the trend line, the development of the EBIT margin. After a start of the COVID period in 2020, and therefore, a challenging year, we actually benefited as a company enormously from the pandemic, and you can see that reflected both on Industrial Solutions side as well as on the healthcare side. On the healthcare side, our 2021 sales and EBIT and EBIT margin we're benefiting from the increased demand for components that were used in COVID vaccines. On the Industrial Solutions side, we had actually an increase in the demand and as a consequence, also EBIT and EBIT margin for coffee capsules. Apparently, we have all been drinking a lot of coffee during our home office and the forest working in a more refined setting. As of that point, the developments of Healthcare and Industrial Solutions divert. In 2022, healthcare is actually able to hold on to its EBIT in absolute terms and also largely in terms of its EBIT margin in relative terms. With the benefit of hindsight, that has been due to the increased stocking, the increased building up of inventories in the industry, driven by two factors. One was an assumption at that point in time, that the vaccination requirements would continue. You have to imagine that in '22, if you recall correctly, while Europe was opening up many parts of the rest of the world were still actually in locked down. And secondly, the supply chain interruptions triggered by the start of the war in Ukraine. Reality kicked in, in '23 when the market corrected and the destocking started that has been impacting us, but basically is reflecting a normalization of the market post pandemic. In half year 1, 2024 in our healthcare solutions we do see a continuation of the destocking trends. We see, however, on top of it, that the safety stocks that our clients are maintaining in comparison to the pre-pandemic period has gone down. And the reason is that due to the overcapacity that is there in the component market, they are able to afford lesser lead times and therefore, lower safety stocks. For some of our customers, we also see that vaccination fatigue is lowering demand for our product. Visibility for Q3 is somewhat or visibility for year-end is somewhat limited for Q3, we still see no remarkable uptake in sales. However, that doesn't mean that for Q4 or '25, that picture would stay the same. We have naturally invested in this time period in Healthcare Solutions in top-notch plants, notably in India and in the U.S. These plants remain an essential part of our strategy forward to support our customers in the Healthcare industry with the products that are needed for them to operate well in the future. When we look on the Industrial Solutions sites, the post-COVID peak came to an end quite quickly in 2022 with the lifting of the requirements to work at home. But also, you may recall in '22, inflation was extremely high. Recessionary tendency set in, which meant that our the end customers of our products, yes. So the drivers, of course, for example, also lowered their demand, which naturally then impacted us as Dätwyler negatively in the year '22. However, since that period of time, we have been able to effectively build up our EBIT again to the levels of 2021 and our EBIT margin, thanks to cost improvements, price increases that we were able to discuss with our partners, reflecting the value that we are bringing in to them. And last but not least, productivity improvements. Productivity improvements will continue to be essential for us also moving forward. When we then look at the consolidated income statement, I think you will be able to recognize top part quite easily from what I've just discussed. Our net revenues went down by 5%. Our EBIT, however, increased by 11.6% year-over-year, resulting in an EBIT margin of 11.8%, which is 180 basis points higher than what we had last year. There are 2 cost lines in this functional income statement that I would like to highlight. One is naturally that cost of goods sold amount to the highest cost line in our overall P&L. So it really matters what happens there. And as you can see, our cost of goods sold was contracting faster than our sales. The reasons for that were already mentioned several times, lower material cost, lower energy prices, lower volumes overall help as well, but particular also those efficiency and productivity improvements and the synergies that we are currently unlocking in the organization matter for us. And that matters particularly because we have, as a mandate that we need to continue to drive long-term profitable growth. And in order to do so, we need to safeguard that we free up enough funds to particularly also invest in topics like innovation and R&D because that basically represents future growth. Volker already mentioned a really good example in the form of SoftPulse, but that is just one of the many examples that our organization is working on. So from that note, I'm happy to say that the R&D expenses stayed stable versus prior year and still amount to around 3.8% of net sales. G&A went down slightly. G&A -- sorry, sorry, my correction. M&S went down slightly, spend in that area remains also important for us to drive our commercial prowess. What I can say here is that the reduction that you're seeing is the result of a better resource allocation towards those activities that add most value for us. G&A itself remained relatively flat. When we then look at EBIT down to net results, then you can see that there are two lines that are worth highlighting. One is the improvement in the net finance results which is largely due to further reduction in the interest expense. Now we improved our interest expense by CHF 2.9 million due to the amortization of our debt on the one hand and higher interest rates on our cash balances. When we look at the overall tax amount in absolute terms, that went up slightly. This is due to the withholding taxes that we have on our dividend payments. Typically, this fall in the first half of the year and in the second half of the year, you see them flatten out. Yes. So the effective tax rate that is currently at 29.9% over the course of the year will go down in the direction of 27%. Surtax on U.S. foreign controlled entities is also contributing to the result. In the context of BEPS Pillar 2, we did not have to book any top-up tax. The reason is that all our countries were above the minimum of 15% income tax. When we then look at the net result line, we see an improvement of 20.2%. And as Volker mentioned already, net result per barrel share that is currently at CHF 2.27. I continue to the balance sheet. And what you can see here is a reduction in the balance sheet -- in the asset side of 1.7% driven, in particular, by a CHF 26 million reduction in the current assets. What matters there is the reduction of cash and cash equivalents, reflecting also the debt payments and that we've made as well as other receivables. And then I would like to highlight that our inventory and trade accounts receivables went up slightly versus year-end 2023. This weren't some additional discussion. The overall trend, if you look at it at a longer time period is actually that inventories are going down and that also our accounts receivables are going down. So while our accounts receivables increased versus year-end by CHF 6 million, and overall, they went down by CHF 70 million, if you look at the June year-to-date '23 figures. Similarly, with inventory, this went up by CHF 13 million versus year-end. But if you look at the longer-term trend, we see a reduction of CHF 20 million. Yearend was lower for us, mainly driven by the fact that we have production and delivery breaks and by the cash collection that took place in the December time period. Having said that, such a trend is naturally something that we are watching extremely carefully. We want to make sure that we manage our cash extremely tightly again so that we can free up the resources to support our overall results to repay our debt, but most of all, also to invest in our future. When we look at the liabilities and equity side, then the two big movements that I would like to call out is the pay off of short-term bond of CHF 150 million, that bond was due at the end of May 2024, and we issued a bond of CHF 120 million, so CHF 30 million less that you can find in long-term liabilities. Equity itself as a percentage of the total liability and equity did not change, aside from the impact naturally of a better net result and the payout of the dividends of CHF 54 million as well as a CTA of around CHF 10 million. What is important to highlight here is that Dätwyler puts its goodwill, offsets its goodwill against equity. That means that overall, our equity will be lower than those companies that treat equity as an intangible asset. The advantage of that for us is literally that the risk of impairment is very low. Let's have a look at the debt structure. Here, you can see very well that the bonds that we have, including the 24 to 29 bonds that was issued this year. The two movements I would like to highlight based on the graph on the right is that we materially reduced our bank debt with a third-party bank by CHF 28 million. Our long-term bank debt, as a consequence is at the moment, only CHF 80 million. And from a financial point of view, that is naturally much more advantageous. We increased our loan with Pema Holding, our majority shareholder with CHF 27 million. Overall, CHF 608.5 million are captured by external debt. If we take out the cash and the cash equivalents, you get the half year 2024 picture of net debt of CHF 508.8 million. That's a small improvement of CHF 8 million versus prior year. Last, the consolidated cash flow statement. Here, you can see that we improved our free cash flow with around CHF 5 million. The biggest benefit came from the net cash used in investing activities due to lower CapEx. Our net cash from operating activities deteriorated slightly due to more funds being captured in our operating net working capital. What is important to stress on the CapEx is that in the Industrial Solutions organization, we are at an average run rate. We are currently, however, in the Healthcare Solutions business at a CapEx level that is lower because we come from this enormous peak of investment and therefore, right now, our needs are more limited. Over time, naturally, that will change, however, not before year-end '24 or for that matter, unlikely for '25. Net cash used in financing activities has gone down due to the repayment of bank debt and other, resulting in an unfavorable development of our cash and cash equivalents due to the fact that on the first of January, our cash was actually at a very strong position. It in the end, still led to an increase of our cash and cash equivalents. So in a nutshell, before I hand over to Volker again for the outlook. Our EBIT margin improved. We grew our EBIT faster than the top line. We were able to continue to pay off debt. And very importantly, we continue to work on freeing up more cash to invest in our future. Commercial and operational excellence will continue to play a very, very important role for that filer to further unlock its potential. And on that note, I hand over to Volker with the outlook.

Thank you very much, Judith, for giving us that financial insights. On our outlook, we are very confident that Dätwyler is on the right way. Despite the current market environment, our reliable short-term forecasts are extremely difficult as mentioned, compared to the previous cycles in some of the markets. And well, in addition to the geopolitical uncertainties, this year's presidential election in the U.S.A. already represents an extraordinary piece of history. It has an impact on some markets, clearly, and we assume that this uncertainty surrounding the outcome of the election will remain to have a negative impact on the economic sentiment worldwide and investments in particular markets such as oil and gas until the election date. Passenger vehicle production is back on the pre-pandemic level and is expected to grow further from this point. However, with clear uncertainties on the speed of growth and as well regarding the share of battery electric and hybrid electric vehicle, especially in the U.S. and in Europe. Assuming a WTI crude price level of more than USD 80, the oil and gas industry should be generating positive cash flows, which will most likely trigger new orders from the beginning of 2025. In Healthcare, as Judith has mentioned before, we can currently not see clear indications for higher demand and an end in destocking over this visibility we have from our business model, and that concerns the second half of 2024. Maybe we would see in our updated orders on hand with usually maximum a 3-month visibility, some changes in the next months, hopefully. Therefore, we do not expect significant changes to our market environment during the second half of 2024, particularly for Healthcare solutions and General industry. The Mobility and Food and Beverage business units are expected to maintain their positive development also in the second half of 2024. For the Dätwyler Group, we expect the business performance in the second half of the year, broadly in line with the first half. For the full year 2024, we expect our revenues to be slightly below and the EBIT margin above previous year. In the medium and long term, we are convinced of the growth potential in our markets. As soon as the market demands go back to a normal level, we will benefit from economies of scale, thanks to the advanced investments we have brought forward and achieve an increased performance, driven by the recent improvements in our cost and profit structures as of most of them have a sustainable effect on our performance. The Dätwyler Group is well positioned in both business areas, Healthcare and Industrial Solutions. With our long-term business approach, we diversify in market segments with high barriers of entry, attractive growth perspective and that we can serve based on the high core competencies we have acquired over many decades. In Healthcare, we have built an ideal combination of technologies covering an uncoated, spray-coated and film-coated range of high-quality elastomer components for injectable drug packaging, a supply from our advanced first-line manufacturing sites and a so-called pure-play approach in the market. In Industrial Solutions, we address different markets with customer-specific solutions and material design. These co-engineered solutions secure our access to fast-growing markets with above-average profitability such as vehicle high-voltage batteries, hydrogen applications and especially all applications that would demand smart material applications. By delivering superior quality and reliability with our system-critical elastomer components, we generate uncompromising value and demanding customer applications, while representing at the same time, only a small share and the customer's bill of material of the entire system. We do master the product from the so-called cradle to grave, capturing value from understanding the customer problem, over solution and material design, the production process, flawless launches and reliable supply. More than 8,000 Dätwyler employees, more than 25 sites around the globe are dedicated to make Dätwyler better every day. In the current market phase, we are further improving our commercial and operational excellence, such as our process standards and cost and profit structures within our company. We are convinced this will allow us to unlock further potential and synergies in the short and midterm and improve our positioning for the next growth cycle in our industries. We are -- the large number of new orders from existing and new customers show that long-term growth drivers in our markets are there and that we are the preferred development partner for our products and services. Optimized cost and profit structure, as mentioned before, and an enhanced standardization will allow us to fully focus on the generation of value, strengthen our innovation capabilities and accelerate the commercialization and industrialization of our next generation of product solutions. Along with the market transformation, primarily in our business units, Mobility connectors and General industry, we will further support the mega trains with new platform technologies, co-engineered solutions and smart and clean materials. In the midterm, we will gradually move away from products with any commodity character to applications where we can capture the additional value. We can cover and offer with our superior technologies. A massive acceleration of our go-to-market approach and the commercialization of existing innovation projects such as electro-active or magnetically active polymers or soft dry electrodes, as mentioned before, is on the very top of our agenda. In a nutshell, we will invest the unlocked potential in new technologies and capabilities to master our next generation of products and our sustainability journey, which is clearly underlined by our SBTI commitment. We consider sustainable business development as a key factor for long-term success and a competitive position because it is not only our duty to protect our resources, but it generates value for our stakeholders. Therefore, our agenda foresees as well to further integrate sustainability into all aspects of our business operations, while at the same time, complying with increasing legal requirements in all regions as we focus on preparing for the corporate sustainability reporting directive. We do also actively work on the design of new, more sustainable materials and manufacturing processes. Dear participants, we hope that we could give you a conclusive overview about our 2024 half year performance and our activities at Dätwyler. Before we will start our Q&A session, let me thank you for your interest in our company, also on behalf of Judith van Walsum, Guido Unternahrer and the entire Dätwyler management team. Thank you very much. So question-and-answer session. I -- Guido -- I propose or we would start with the physically present participants here at the Zurich ConventionPoint.

I have one question for each of you, and I would also start with Mrs. Van Walsum. So I've seen that for the first half, the depreciation charge continued to increase despite the fact that CapEx is already on the retreat for three semesters. Will the first half 2024 be the peak in terms of depreciation? And if not, when do you expect that to roll over?

Yes. Okay. So thank you for pointing that out. We are naturally continuing to -- or we have to safeguard our production capabilities moving forward, right? So as I mentioned, it is essential that we safeguard a certain amount of CapEx investments to maintain our facilities across IS and HS moving forward. And I do expect that the dip we currently see in CapEx in that sense, will not continue in the longer term. Having said that, the enormous depreciation charges that we are currently still facing is naturally also a result of the peak investments we had noted in the healthcare plants in India and in the U.S. What is relevant as well, and I haven't highlighted that in the overview but you do not see immediately the impact of depreciation on our PPE. And that is due to a CTA adjustment of CHF 22 million that leads to a PPE that stays relatively flat.

Thank you. And now the second question for you, Volker, please. You provided us with a couple of examples of project wins, in particular, also the new products like the electro-active polymers. Can you provide a little more light on the time line you expect that is required for those to generate meaningful revenues and also explain a bit in what final applications those products may be used more?

Thank you very much for that question as well. So we have to distinguish in between new products that are about to enter the serial electrification in the short term. So we have a couple of business wins, are really serial business wins that would concern for instance, battery applications in almost all regions for vehicle applications. Then we have a couple of innovations coming from the connectors business unit that would concern a certain resistance of materials that could as well represent a very significant competitive advantage in the midterm in these applications. And then going further into that, we need to distinguish in between these very close to serial application business wins and these innovations such as SoftPulse. I mean this is a technology platform that we are currently investigating with a couple of companies, what would be the most valuable application. I mean, at the end, this is a market that's in a very early stage and what we are doing currently. We are positioning us in a certain range of applications where we think that they will allow us to scale and to generate the highest value in a later application for us, yes. On the electro-active polymers, if you, I mean, that's, I think, something that has been shared with you already before. I mean the electro-active polymers, I think they have a very interesting application field in the automotive interior. Since we all know that an EV doesn't emit that much noise in the operation compared to an ICE vehicle a couple of years ago. And so every movement, every setting in seatings and vent regulators you can hear today, right? So in order to replace the mechanical part, that is the current application, we would, in that context, have a disruptive innovation in some of these mechanical movements. So we are speaking here with different customers in different areas of applications. However, I would just like to highlight as well some applications outside of the automotive market that could have a significant impact on our earnings in some years to come and also clearly outline that the sales expectation and the revenues are not seen as a short-term impact to our P&L, but as something in the midterm. For us, it's far more important to find the right application in order not to end up in a commodity situation with our innovative product. Does that answer your question?

You have reduced net debt last year by around CHF 80 million. And now in the first half '24 by roughly CHF 8 million or 9 million. So can you tell me what your deleveraging speed looks like in 2024? And where do you see net debt to EBITDA by the year end?

So I think for the EBIT, we are following the guidance as was just shared with you, right? So over the last year's EBIT for the deleveraging speed, we naturally will continue to do the utmost to continue to pay. It depends -- it's a trade off in the end between where we stand financially and also what we would like to invest to safeguard the future. But there is a strong commitment to overall deleverage because that gives us in the end more financial flexibility.

So when you say you want to deleverage where do you see then your ideal leverage level.

So we would like to get to -- let me answer it differently. We would like to get back to an equity of around 40% versus liabilities of 60%.

And I think for the full year, you mentioned your midterm guidance on the profitability level of 18% to 21%. Now I don't see that anymore. Are you still committed to that.

Yes, the midterm guidance of 18% to 21% stays. However, it remains midterm because in order to realize that we absolutely need to see that our projects, in particular, the healthcare business come to fruition as planned.

And what is midterm?

Midterm would be the 3- to 5-year time period?

Okay. And when you say you have not full capacity, you're not running on full capacity for your healthcare plants. Can you give an indication what capacity level you're currently running?

I'm sorry, we don't share capacity utilizations, numbers of our plants.

Yes, I wanted to ask the same question on the utilization. Maybe you can tell us about how many of your 25 or more than 25 sites are underutilized at the moment. And second question about personnel. I mean you've talked a lot about optimization. Have you reduced your workforce and if yes, where and by what extent. And if you may ask -- if you may have one more question. I was intrigued by your mentioning this vaccination fatigue? I mean, what does that mean then on part of your customers? I mean, were they expecting to produce billions of syringes year-by-year, and this business has now just gone or what has happened there exactly?

Let me take that question. So you've asked how many plants are underutilized. I could give you a theoretical answer to that question because at the end, our plant is well interconnected in terms of production and peace flows. What I can clearly tell you is that, for instance, looking at the markets, we have in oil and gas, clearly, we have underutilized capacity in exactly these plants, right? So and further than that, our underutilization, we have mentioned clearly through the fact that we have the destocking effects in our healthcare plans and that rise from region to region. Some regions are more impacted by these effects and some other regions are less impacted. The second part of your question, the second question was regarding headcount, for sure, we have to adapt our blue-collar workforce according to the demands and the shift models we have to fulfill in our operations. That's point number 1. But point number 2 is what we clearly don't do as Judith has mentioned that before. We do not jeopardize our readiness to be able to catch and pick up supply when the demand is rising again. So that's a very difficult process as well. You can imagine on the one hand, we need really to adapt our workforce to the conditions we are in. On the other hand, we need to maintain our specific knowledge in the team. And second, we also need to maintain our capability to pick up the market when the volumes are rising. The vaccination fatigue, your last part of your question, I mean if you may be -- I -- honestly, I took the vaccines at that time. And honestly, I also took all the vaccines for the flu many, many years before 2019. So -- and it happens to me that I don't take the vaccines for the flu anymore because, honestly, I was -- I felt a certain fatigue of taking vaccines, right? So that's exactly what the branch is pointing out with vaccination fatigue, which means that, obviously, the sales and the volumes for vaccines in general are going down, especially for these vaccines that have not a clear recommendation as, for instance, in the guidelines that each and every country or region is issuing. Well, and the share of vaccine-related products, honestly, even if I wanted to, I cannot unveil that in detail because as you might know, we are supplying packaging solutions. And some of these are concerning generics. And in these generics, in any case, don't know which drug and which medicine will end up in the final product. So even if I would like to do that, I cannot tell you what is exactly the share that is allocated to vaccine products and to others.

I'm sorry, but you have not answered my question really about the headcount. So has the head count stayed stable. So you've not -- no changes there.

We have issued the head count as well in our -- I mean you can see it basically. At the end, I told you that we have made adoptions in our workforce, especially in the blue collar, yes.

Then where, that was my question.

But that was the first part of my question that was answered. I mean in all the plants where we are underutilized. So in all plants where we are underutilized and we do not run the full shift model. Clearly, I have either to reduce the accounts for hours for people that have been accumulated over a certain period or I have to reduce temporary workers or I have to reduce full workers -- full blue-collar employees, yes? So -- and that clearly depends on the area and the particular plant where we are underutilized.

So can I just say the number, it's minus 4.9%, both on head count and FTEs. Minus 4.9% versus prior year. And so the head count average is 8177 and the FTE average is 8056. Okay. And what Volker indicated, what is extremely important on our side is find that right balance between adjusting to the market conditions in which we're in and at the same time, safeguard the capabilities and the knowledge and experiences in those areas where we want to grow.

I'd like to come back to the EBIT margin. I'm not quite sure if I got it correctly. You say you expect an improvement versus previous year, which was 10.5%, I guess. We've learned in March that the base of improvements -- further improvements should -- would be this 10.9% of H2 of last year. And now we are at 11.8% already. So is it fair to assume that the margin should stay over 11% or not far away from where it is now in the full year '24.

I would prefer to leave the answer open and the reason why I do that, yes, in full transparency is that over the coming months, we need to look -- we're part of a strategy process that has started and we really need to safeguard that we have the sufficient funds available to drive growth in the longer term, yes? So that -- it certainly will not be below prior year, yes. That is something we can commit to. At the same time, we have to make sure that we do the right thing for the longer term.

I have a question on Healthcare Solutions. You were saying that it was underutilized and destocking. I was wondering how is the pricing developing or like this, there is a revenue decline? How would you split this between volume and pricing? And then I had a little bit -- the normal question like you didn't mention the magic word obesity, which is like the buzzword in the stock market. I was just wondering what is now currently the position of that wheeler? How big is it? Is it low single digit? Is it low double digit, you can say what you would like to this growth. And I was just wondering. And then finally, I had this question on connectors because that used to be the segment with the highest growth CAGR of 9%. And I'm just wondering if there has been if there is a rethink going on because 9% in any given industry is very high. And I'm just wondering if what the current thinking is because -- in general, I have this feeling well. The start since the acquisition has been somewhat slower than hoped. So I was just wondering what is the current thinking on the connector business.

Let me pick up the connectors question first, so we'll take it from the back. So first of all, the opportunities we have today with the acquisition of the connectors business unit is first regional because we are about to roll out that business in Europe because currently, and as you also saw from the structure of the acquired company, very strong in the U.S. and Americas, very strong in Asia and still a lot of opportunities in Europe. So that's what we are tackling and that's what we can tackle very well because our structures from the mobility business unit with products that require a similar infrastructure and a similar technology is in a good position. So vice versa. This fits very well together. So the synergies that we can have in the U.S. and in some part, to some extent in China. However, we are already very strong or have been very strong in China with the Mobility business unit is the other way around. So that fits very well. Growth. I mean, as I've mentioned before, sure, a lot of our customers and as well at the end, the OEM has clearly, especially in the BEV and you can see that from all the statistics. They are clearly failing their sales targets on the share of battery electric vehicles. And that in Europe, as we all know, may come from the legislation in some countries that has changed in terms of incentivation of BEV vehicles and in some other areas, and it's just kind of a yes, delayed development. I'm sure that we will have a higher share of BEVs and what is very important to us is that connectors is really a strategical milestone in serving customers with our connectors for high-voltage applications and as well all other applications in the BEV and hybrid electrical vehicle. So we expect that this growth and since our project wins are very favorable, so we can really see a sound order intake for our products, as I've mentioned before. So we are convinced that we will, in that area of application be clearly over-performing the growth of the market. However, currently, the BEV market, as we all know, is far less fast as we all thought maybe a couple of months ago. So there was, I think.

The second is obesity, and then I'll take the volume question.

Yes. I mean we are working with top customers on GLP-1 products as a second source and as well as an exclusive development and clearly, I cannot share any names, and I cannot share any products. And that's what you clearly know. I mean and as you also know the mechanics in the pharmaceutical and healthcare industry. I mean this is about the validation of the end product from our customers. And second, it is clearly about the success of the end product later in the market, yes. But we are very confident since our technology is well received at our customers. And in some of these projects, we are in a very, very late stage of the validation already.

And then it brings me to the third question that you asked. So our volume decline that we have seen is in the double-digit million range. and our price increases in the mid-single digit range. When we speak about price increases, we naturally see overall that raw materials have gone down. Energy prices have gone down when we're dealing with indexed contracts you obviously can see an impact in the selling price moving forward. However, our prices are not only determined by price indexes. It's also about the value that we bring in towards our customers, yes. And that's where you do see deviations versus a general price increase.

So do we have any questions.

Sorry, the price increase was a favorability to be very clear. Yes. So the volume was a double-digit million reduction, single-digit increase on the price side.

There are some question from the chat as well. Some of them regarding the outlook and I think, it would be best summarize a few. If you could provide a short overview on the expected developments of the 5 business units in the second half that would summarize several of the questions from the chat.

Yes. I wasn't sure if I gave that already in my outlook, but I can repeat it clearly. I mean in healthcare, as I said, we have a visibility that usually would comprise the Q3 of this year in terms of our orders and order visibility. So we do not expect, as I've shared before, any significant change on the situation in healthcare for the Q3. So -- and as soon as we have a visibility range that goes further, we hope -- clearly, we hope that it will start to -- this destocking effect will start to disappear, but we cannot -- it would be just a guess, and I don't think we should spend too much time on guesses today. So then clearly on mobility, as I've said before, in mobility, we're picking up. I mean, we have very attractive applications. We have some launches during the next month. That will then pick up hopefully quickly in terms of sales during the course of next year. In terms of profitability as well in our Industrial Solutions itself. I think there are some opportunities and some, let's say, potential to be unlocked within the next months and years, clearly. Looking at food and beverage, we have a positive trend that we can -- that we expect for the second half of 2024. And in general industry, we all know that is about especially oil and gas, particularly, and some end products that are significantly impacted by also markets that are in midst of geopolitical tension. So that are weak due to these reasons. Does that answer the question, Guido?

There's one additional question on CapEx and it's mentioned that it has decreased significantly. And how much of this was due to cutting on expansionary CapEx and what level of CapEx should be expected in the years ahead?

Let me take that first part of the question because that's a clear statement from our side. So Dätwyler is not acting in such a market phase in a way that we would cut maintenance payments in order to jeopardize our supply safety and the supply stability to our customers. That's not what we are doing. Very clear no on that area. So we are following preventive maintenance and all the recurring effects that or recurring expenses that we have in keeping our plants up and running without exception.

Yes. And if I can add to that the reduction in CapEx is really due to the fact that we accelerated investments in CapEx over the last few years, and we're at the end of that cycle, with the plants in India and the U.S. having been built. The level that we should get to or that is more natural level is probably around the 6%, 5% to 6%. So this is where I expect us to get to in due course. I don't expect that in the rest of '24 and probably also not in '25.

Then there's an additional question on Healthcare solutions. If we want -- if Dätwyler wants to reach above 22% EBIT margin by 2028, what gives you the confidence? Do you have an order backlog? Do you have projects on hand, which support that EBIT assumption for the time 2027, '28 onwards.

So what we can see from our funnel of projects that is -- I mean, clearly increasing all the time is that we have, first of all, a very high share of high-volume -- high-value applications versus a couple of years ago. So that is clearly representing that the customers are valuing our first-line plants and also taking us very seriously for applications that are in the high-value segment. And I mean, looking at the success of new orders that we are working with our customers, I mean clearly, one part of it is the serial supply and filling the overcapacities that we currently have. And the other part of it, and that has been called out to my knowledge, since 4 or 5 years ago already, which is also materializing in a good way. Is this gradual shift from low-value applications in pharmaceutical or healthcare to high-value applications. So the more high-value applications. We have the higher the margin is clearly and with our overcapacity is filled. We see it as a normal process to gain this profitability in due course. However, very much depending on the volumes in the market and the demand in the market.

There's one last question from the chat regarding the connectors business. The weakness in the connector business? Is it more related to destocking? Or is it more related to recessionary trends.

And I mean, for us, as we have to understand this -- the position of Dätwyler in this market, I mean, we are delivering a share of products where we can clearly see the end application, and some part of the product since that kind of a standard application plugs and parts for standard application plugs. We cannot really see the end application. So for the products we can see it, it's clearly a slowdown in ramping up volumes in the e-mobility since we see what is a high-voltage application and what is a more standard application. And the second part of it, it's clearly something that we see and a gravity more in the U.S. area, as you also can see from our revenue split. From that point of view, it's clearly a kind of a recessionary trend in the combination with some end applications that are still not ramping up as fast as we've all expected.

So I don't know, are there more questions from the people in the room? If not, I think we would come to the end because there are no more questions in the chat.

All right. Thank you very much, Guido. And I would like to express my thanks to the audience here in the ConventionPoint at Zurich and as well to all of the participants in the webcast. Looking forward to working with you. And thanks, again, for your interest in our company and hope to see you again soon, latest at the annual results in February 2025.