Semperit Aktiengesellschaft Holding (0G29.L) Earnings Call Transcript & Summary

So hello, everyone, and a warm welcome to the Austrian Air Conference. So it's a real pleasure to have you all here today for that specific roundtable of the Semperit AG Holding. And in this case, I'm really delighted to have the Director of Investor Relations, Judit Helenyi, here with us. So she will guide us through the presentation and give us some insights about Semperit. And yes, I would say we're looking forward, Judit, to the presentation, and the stage is yours.

Thank you very much. Thank you for having me here, and thank you, ladies and gentlemen, for your interest. As you have heard, my name is Judit Helenyi. I'm heading the Investor Relations team here at Semperit. And I'm happy to guide you through a brief introduction to Semperit and some updates about the half year numbers, and then I'm really happy to take your questions. So then let's jump into it. Who are we? What are we doing? How we see ourselves? We say we are a leading industrial elastomer specialist with a diversified product portfolio. And here, we see ourselves as a global pioneer. We have the production of high-quality elastomer applications. Elastomer, it's just because not just rubber, but also similar chemical products. And we have a history of [indiscernible] more than 200 years. We've had our 200th birthday celebration in December 2024. So we are an old lady, but we see ourselves as an agile close to start-up company because we reinvent the ideas, how we see ourselves, and we are able to adapt to changing times, changing demands. So we are constantly expanding our global footprint. We have a technologically value-added innovation approach here, and we say we keep the word of our customers running. So it might sound a little bit too abstract. So let's go into some deep diving what we really do have products. You might not be aware of, but we have a lot of products that you might have been in contact or very likely have been in contact. If you start your day, you wake up, you get out of bed, you may go and take a shower. We do have silicone mats for shower heads. This is produced in Rico in our elastomer production site in Upper Austria. If you go to the kitchen and make yourself a coffee, then the coffee machine has parts that are again made out of silicone that are produced by us. If you then go and make your way to the work, then you might have an escalator where you have the hand rails. And here, every third hand rail worldwide is produced by Semperit. So the likelihood that you've had our handrails in your hand is very high. Then you might take the underground or the train, we have parts for the doors of the underground. There are safety first security parts so that it's not closing and not closing you in between. So these are relevant parts that you can commute safely or there are also parts for the railway system where we have [ silent ] pads and parts for the railways themselves that are having dampening functions on the one hand for a smoother railway experience, but also for a more quiet experience. Then you get to your offices or to maybe a beautiful building like the [indiscernible] and then you have the ceilings and the facades that are coming from us. So all the facades, if you are take a look -- taking a look at your windows, you will have the ceilings in between them. And it sounds like an easy task, but it isn't because you have to adopt to the different types of ceilings and different types of window closing systems. So this is something that we are also doing. You are also seeing some other pictures here of important elements for yellow goods. These are hydraulic hoses. This is how you transfer energy. This is really [ craft. ] This is withstanding a very high number -- a very high pressure. So if you compare a tire has [ 2 bar ] and these hoses that you have in these yellow goods are having more than 200, sometimes even 1,000 bars. So this is a very specific, even though it looks like very easy. We also have industrial hoses, I am sorry, that are then used for transporting materials. So be beer, milk, gas, we have [ fueling ] system at the airports, you name it, we can do it. Then we also have important parts for healthcare and life science. So for example, again, with the silicone product, we have very, very nano microsized parts for insulin pumps or for eye surgeries that needs to be very precise, and we are able to do that in a high amount of products produced at once. And if you are thinking about [indiscernible] we are also producing for mountains and winter and summer time. In the mountains, we are producing ski foils that makes the skis more elastic. We are also producing cable car rings so that you are transferred to the mountain up the hill in a smooth and safe way. And we are also having snow groomer parts. So we are represented in very large pieces of your word, which you might not know, but yes, we are still there. So having said that, let me just continue of how we see ourselves. What we say our vision is to address globally challenging dimensions and developments, and we try to add value with our applications. We are just not producing volume products but also try to support our customers' needs. [ Where ] we say we are focusing on where we can, of course, profit from are the important megatrends, climate change, demographics, urbanization, mobility, electrification. We do see ourselves in a leading market position. That means that we are aiming always for leading positions that's supposed to be at least top 3. We want to be on the technological edge. So what we can add here to a customer's product has a technological know-how, even though it's just rubber, but it's not just [ dumped ] rubber. So we have a huge knowledge here. We have 200 years of knowledge in the background, and we have a huge collection of recipes. So we know how to mix all the parts that they get the right qualification, the right properties so that we can serve the demand of the customers. We have a resilient business model. As you see, even though we, of course, just like many other colleagues in the business face economic cooldowns and challenges, we have a resilient model here because we can balance it. And we know that when there are cooldowns, then we can focus on our homework and then prepare for the upcycles. And then, of course, we have a strong industrial platform here and focus on a very lean management so that we are able to serve the demand in a very lean and efficient way. So the mission of ours, what we see here is being a global leader with advanced and sustainable elastomer materials and solutions. So how we are set up? The company is, as you have seen, we have very different products that we are offering to our customers. We have said that we have to focus on the strength of the product and our knowledge behind it. And we said, okay, you cannot manage everything on a very divided base because then you're losing yourself, but you cannot manage everything like more of the same because they are diverse. So we said there are two major types, and they are grouped in two major divisions. One is the Semperit Industrial Applications. Here, we aim for cost leadership and to harvest volume businesses. What we see here is the hoses, the ceilings and the types of products that are produced in huge volumes. And we are able to focus here on cost leadership, but we also know the needs of our customers. So we are not just producing volume-wise, but also addressing the specific requirements. We have here a low complexity because we say this is a business that you have to drive volume-wise and therefore, you need to reduce complexity. But on the other hand, you can focus then on those products that are profitable in a stronger manner. We have qualified sales team. We have a very strong contact with our customers so that we know how they are evolving. That is also good for us because that enables us to know how to drive the utilization and the quantities that we are offering. And we have here a high-degree of unification, again, in order to have a higher efficiency here. So we say it's a Commodity business. And it's not a problem for us to say commodity, even though it's sometimes not a nice word. But we say if you know that you are in a Commodity business and you know how to play in a Commodity business, then you are well positioned here. And we feel here like we are well positioned. We are having top numbers in the market. We are the top market leader in terms of [ hose-only ] producers, and we have a very good knowledge about the business here, like what you will see here is that we are in an economic cooldown phase right now, but we see the first signs that it is supposed to improve. And the other side of the coin, Semperit Engineered Applications. This is a completely different [ part. ] Here, we are working in attractive niche businesses. We are specializing on attractive niches. Here, we say we are having very good EBITDA margins and are able to develop the products together with our customers. We are leveraging on our know-how. We are having a very strong customer focus so that we are looking around where customers might be and what their demands are and find the right solutions. And then we can knock on their doors and say, we know what your problem is, but we do already have a solution that is feasible, is cost efficient and that solves your problem or eases your life. Maybe you don't have to have 3 or 4 production steps, but you can reduce it to 1 or 2 and so on and so forth. So we are very strongly collaborating here with the customers. We have a very strong R&D focus here. And the sales team is, as you can imagine, again, very qualified and is focusing very strongly on a good content with our customers and potential customers. So here, it is important that we find the right product market combinations and develop those. The businesses that are under these engineered solutions are the silicone solutions. Everything that is made out of silicone is here. We have the [ belting ] systems here. And we have the Form business that has, for example, the mountain applications that also has the traffic parts, the railway systems and these are then the parts that are really focusing on more niche-like parts. So how did we get here? We have, of course, I've already said, of more than 200 years behind us. But just what happened recently is that we have reshaped the focus where we want to go and decided to separate from our Sempermed divisions that was -- that were the divisions producing gloves, surgical and examination gloves. We have finalized that separation in 2003. And finally, 2004, it was done in 2 steps. In 2003, we acquired Rico, the silicone producer, where we see that it has a very strong upside, not merely because we say it has synergies. Admittingly, it's not a synergy story. It is because it has a lot of kind of add-on possibilities, things that cannot be served by rubber, but you need similar qualifications, you can do it via silicone. Then we had set up this divisional structure, what I have already described. And we have started in 2024 with the expansion of our Odry hoses plant in Czech Republic and in Thalheim with the liquid silicone rubber. So we are very well prepared for the next upturn. With this, we have set up a very strong platform for further growth. This is also the target which we are aiming for. And that's why we say we are ready for growth once the market is coming back where we see the first signs. So how we can grow? We can, of course, grow on the one hand, via M&A, which we are constantly monitoring. On the other hand, you can grow by your own. So this is what we do here with hoses. We have in the Czech Republic, the Odry site, and we are expanding like you can see in the red brackets, a new plant set up. And this is going to be a very highly automated, very modern plant. It is going to have a high -- a very high level of ESG criteria also included. So this is going to be kind of a benchmark for all the other parts of the hose production. We have here the capacity expansions to be finalized by 2030, and that's supposed to be then 24 million meters produced all-in-all by the company. The ramp-up of the production has already started, and it is now ongoing in '25 and the full capacity will be reached by 2030. We have approximately an investment for the entire capacity expansion of EUR 100 million and EUR 50 million have been already invested by now. So the other EUR 50 million is planned to come in the next years by the end of 2030, the latest. So the high level of automation and sustainable operation is something where we cannot just profit from in terms of green targets, but also in terms of higher efficiency because that means that you need less [ man craft ] here, you need less people here, you are more flexible to adopt capacities and you have a better control of the production levels. The other own growth, sorry, story is the liquid silicone rubber in Thalheim. Here, we bought the Rico, the company already with a half-finished plant. So it was already planning to expand, and we see this part, again, as a platform for growth because we can fill this plant step-by-step as the demand is coming back. We have an investment of EUR 25 million here that is completed and further market-driven ramp-up is planned so that -- sorry, the machines are coming step-by-step once the demand is there. Having said that, again, what other growth platforms do we see for ourselves? I have already mentioned the product market combinations, which are not necessarily new plants, but these are new fields where you can expand. One field is what we have just recently started is heavy-duty rubber material parts for mining applications. These are big mills where you are using huge rubber sheets to cover the mills. And depending on how high the granularity is, the better or the less good you can kind of filter the stone and the material. So at the end of the day, you start, of course, with a very rough system, and it comes down to a very small and very granular part. And this is how you can use those big rubber membranes in these big mills. Another part that we have also started to invent is a hybrid handrail. I hope you can see it on the picture, the difference between the 2 different handrail types. Basically, when you have a new hand rail, it's always glossy and shiny. But after 1 week, 2 weeks, 1 month, it starts to fade. It doesn't make any difference in the quality of it. It's just simply not any more shiny. And this is a topic, especially in Asia, especially in Japan, where you have this need or not necessarily need, but the demand for the shiny thing. So the shinier it is, the longer it is shiny, the higher quality is attached to regardless if the quality is suffering or not. So what we have invented is this hybrid handrails that have part of -- put it simple, a part of plastic part, which is the mix with the rubber and it stays shiny. If you only use just really plastics, then it wouldn't last long because it would break very soon. So this is something that we have developed for the Asian market, and this is, of course, a high-margin market here because this kind of luxury need that we are serving here. And the third field that I would like to introduce here is the Track Belt, like what I have already mentioned. We were in the mountain resource with the other products with the ski foils and with the cable car rings. And we were looking around what parts are there that are moving and that are relevant for us. And we found that the Track Belts are using actually quite a similar system like the handrails where the metal parts of these tires are hanging. So this is something where we said, okay, we can do that, and we offered it to the producers and now we are ramping up this product as well. So what you see here is that we go around, check where the possibilities are and where is unserved demand and where can we jump in. And that's how we say with this additional and newly developed new product market combinations, we are also able to grow. These are just 3 examples. There are, of course, a huge pipeline in the background that I'm not yet allowed to talk to you. But this is a field where we see ourselves in a very strong position. These are, of course, smaller niches, but they are very profitable niches with very attractive margins. That's why we are there. So that's the basic strategic idea of how we want to grow. And because I said that we are also in a very resilient setup, I would now show you the half year numbers that show you how we could kind of face the cooldown of the economy. We saw it starting in '23. We have started with a cost reduction program where we are strongly focusing also these days. And that's how we could manage to have still quite resilient results. So having said so, overview, half year '25. We had a really weak Q1, and we were able to speed up and gain momentum in Q2. So at the end of the day, the 2 quarters in comparison had a huge improvement at the end of the day. We had more than 70% quarter-on-quarter improvement here. We saw a recovery in the order activities, and that is why we say this is maybe the first sign or first signs of hopefully the end of the cooldown period. What we still had is, of course, in general, a challenging environment. The market is not back yet. So all-in-all, we had an EBITDA that was down 35% compared to last year's first half year and the margin at roughly 10% compared to 14% in the last year's first half year. And all-in-all, that's also why we saw a top line pressure here so that the net income was negative. Nevertheless, what we also do see here is a very strong balance sheet with a good equity ratio of more than 45% and the reserve of more than EUR 100 million cash. That is where we say we are in a strong position for further growth because we are able to have a solid balance and solid financing structure despite the challenges of the market. And that's why we said at the end of the day, we are confirming our guidance that we have given, and we are seeing for this year an operational EBITDA of EUR 65 million to EUR 85 million. We call it operational because there is also a chunk of extra cost that is not included in that. It's roughly EUR 5 million. This is for our oneERP project that is also reflected in the P&L and not in the balance sheet as right now. So how does this look like on the divisions levels? If you take a look on the revenues, we've had the engineered applications in a stronger way represented. This is strongly linked to the fact that the industrial applications and the -- with the hoses and with the ceilings are currently still under pressure coming from the economic cooldown, even though we see some positive signs coming down in the order books, but this was something that was clearly visible also in the revenues. And on the other hand, we saw the EBITDA development where the industrial applications could gain momentum compared to last year's first half year. And this was, on the one hand, coming from a quite weak result from the [ Batting ] business. This is in the engineered applications. And on the other hand, due to the fact that the industrial applications could control the cost development in a very good manner. So some deep dive pictures, not going to go too much into details. The industrial applications, you see the cyclicality. This is the part where I say we know we are aware that it's a cyclical business, but we are in a resilient position and are able to counteract and outbalance that. So what you see here is that we had a strong pressure coming towards end of '23. Also, '24 was under pressure, and we were able to improve the results continuously in Q1 and Q2 this year. We do have still challenging market conditions. The order situation is, on the other hand, better. At the hoses, we see mixed recovery signals. But again, that means that just -- that not just negative. With profiles, we are strongly dependent on the construction sector. This is still under pressure. Nevertheless, we might see some bottoming out here, and we might have some positive effect coming, especially from the German infrastructure that might gain speed. With that, we had, on the one hand, divisional sales down and EBITDA compared to last year's. But all-in-all, we see the improvement coming down the road. The engineered applications, as mentioned, had a very difficult Q1, and that was actually the reason why Q1 was, in general, quite under pressure. That was mostly coming from the [ bathing ] industry and also the liquid silicone had some topics. But on the other hand, we see the results picking up. The Form business can record a slight growth year-on-year. So this is quite a stable development. [ Bad thing ] was Q1 strongly affected. Q2 had again better order intake. So we see also the improvements here. And LSR, the liquid silicone rubber is again seeing some recovery in here, not just the products themselves, but also the tool making where we're also involved with, which is also an important part here. So having these 2 parts combined gives us a good and resilient business model. How the financials did develop? We had the cost-cutting measures working. We had a free cash flow of close to EUR 14 million. The cash reserves, I've already mentioned of almost EUR 113 million with a very healthy net financial EBITDA level of 1.7x. We do have the oneERP project ongoing. As mentioned, this is a digital transformation and very relevant and where the first steps are going to be rolled out this autumn. And of course, worth mentioning here the dividend payment that we could pay to our shareholders of EUR 0.50 per share for the year '24. Just a quick picture about the key financial numbers. As mentioned, we have seen the first half year '24 being under pressure. That is reflected in the numbers. But what we also saw here, which is not shown here, is that we clearly see an improvement comparing Q1 to Q2. So all-in-all, this is also the reason why we said we are keeping our guidance as it is stated. The next picture should just give you a brief impression of how our cost measures did work out. You saw here the last 12-month long-term development of the industrial revenues compared to the operating EBITDA margins here. And what you can clearly see here is that when we started with the cost reduction measures in '23, we could strongly drive the EBITDA margin to a positive development. And you see the dotted line would have been if we hadn't done anything. The dotted line stops because we have put the measures into day-to-day operation, and it's not any more monitored on the separate basis, but we are, of course, aware that the margin development is strongly supported by these cost reduction measures. What is relevant here that we say even though we see the cooldown, the economic cooldown in the last 2 years, we focused on the things that we can control, and we can change. And that's why we said we were steering capacity utilization, and we streamlined fixed costs here, and that is the relevant part of what happened during the last quarters. Just a brief picture of how the EBITDA bridge was influenced compared versus last year. As you can see, the major part is the volume effect that hit us. And on the other hand, you see the upside coming from inventory changes, from cost reduction, coming from consulting and warranties and others and also the price and product mix that we could improve. And the EUR 2.2 million that you see at the end of the chart is the project cost for oneERP that is then shown separately so that you have the reported versus the operating EBITDA. So all-in-all, we would have reached EUR 33 million if it wasn't for the oneERP. Just a quick picture to the working capital levels. I told you that we have a very strong position, and I think that gives you a good picture. The working capital put in relation to the revenues shows you that we have a strong balance here, even though we have a slight increase, I think 16.3% is something that is very good and a very good benchmark also in the industries. Of course, we try to steer the inventories, trade receivables and payables as optimum as possible. And yes, it's a financial presentation. Cash is king, and that's why we strongly focus on the cash generation here. What you see here is that we were able, despite the strong pressure coming from the market to generate EUR 14 million free cash flow. And we did also have a very disciplined spending in comparison with that. We had reduced maintenance CapEx and also the growth CapEx was under control so that all-in-all, we had EUR 18.5 million, and that's also how we could gain and manage to have net financial debt/EBITDA ratio at just 1.7x. The balance sheet picture is again showing this resilient setup. We had the cash equivalents. We had repaid our Schuldschein by the end of July. We had financial liabilities at EUR 230 million (sic) [ EUR 231 million ], stable compared to last year's level. Financial debt was again not strongly improved and not increased, and that's how we could get to this very good balance at the end of the day and have an equity ratio of 45%. And yes, this is again a financial presentation to investors. What do we do with the money? What is capital allocation for us? On the one hand, of course, you have to have the maintenance CapEx that is necessary that you're not losing your business and you are able to up and run and answer the demand of the market. So we had a maintenance CapEx of EUR 13 million. On the other hand, we had growth CapEx and digitalization of EUR 5.5 million. This is important because this is the platform where we can then grow from when the market is kicking back. We are focusing on opportunistic bolt-on acquisitions. But for the time being, there is nothing reportable there. Nevertheless, we are checking the market. It's not going to be big acquisitions, but bolt-on ones that are interesting for us. This might be a successor question for solar family companies or this might be also a structuring story. I think we have shown that we are able to restructure business very well. So these are the ideas that we have in mind here. And of course, last but not least, the dividends where we had paid a dividend of EUR 10 million in 2025 for the year 2024. So what is the outlook right now? We said we see the recovery in H2. It is supported by the order situation. We still see, on the other hand, the uncertainty. It is still high level, and it's still not yet over. The cost-cutting measures are being continued and are being successful. All-in-all we had, I think, more than EUR 20 million saved in the basic like-for-like comparison. And the medium-term clear positive drivers are clearly there. We see the infrastructure projects. We see rising defense expenditures. So we see the potential coming from the market. Therefore, we are confirming the operational EBITDA at EUR 25 million (sic) [ EUR 65 million ] to EUR 85 million. The project expenses for oneERP are stated at EUR 5 million, as already mentioned. And the CapEx is expected to be at EUR 50 million in this year with a split of EUR 35 million to EUR 15 million maintenance versus strategic growth CapEx. And yes, we are almost at the end, but I would not like to leave the presentation without showing you the 5 reasons why you might consider to interest in Semperit -- to invest in Semperit. We are a leading global market producer of elastomer applications with a very strong industrial base. We do have a very strong focus on innovation and technology. As already mentioned, we are offering solutions. We have a resilient business model. I think the numbers are proving this thesis very well. And operating leverage is very important. What we had seen in the first half year was the other side of the coin, the negative, but on the other hand, when the markets are coming back, is supposed to have a very strong positive effect on the results. The strong balance sheet is a very stable development and the cash generation capacity despite the market challenges, I think, is a very visible sign. And yes, we are a value play with recalibrated global platform for future growth. This is it from my side, and I'm happy to take your questions at this point.

Thank you so much for the detailed presentation, Judit, and the deep dive into what makes Semperit so special. So ladies and gentlemen, we're now happy to take your questions. [Operator Instructions] [ If you would like to speak directly to Judit, you can raise up your virtual hands and then -- you are able to unmute yourself and for sure you can ask or submit your questions in our Q&A section and then we will read them up for you. ] And already having said that, I see we have 2 questions by now. So let's start with the first one. How are your capacities currently utilized? And to what extent will growth investments add to your capacity?

Thank you for your question. The capacities are, as you might imagine, currently not fully utilized. We are -- depending on which part we are talking about, we are down to partially, I think, 70% and upwards. It is, again, very strongly depending on which businesses we are talking about. Of course, the ceilings are right now still under pressure, hoses are picking up. We had the Project business of belts, transport valves. This is very much moving with the project. We had some capacity reductions here. Form is performing really well and the Silicone business is again picking up, too. So the question is directing at the right point. We are not at full capacity utilization right now, but the -- and trends are moving upwards. Sorry, just the second part, investment added to the capacities. On the one hand, we have -- just let me jump there. The -- oops sorry. For Odry, the hose capacities, we will expand to 24 million. And here, we had, I think, 20 something. So this is something very, very significant, especially as it is going to be a very efficient part. With Thalheim expansion, it's hard to say because it's depending on what products you are producing. So it will clearly add to the capacities, and it is -- it has already started to add to the capacities, but it's hard to quantify. I'm sorry for that.

All right. Thank you. And the second question by now is, to what extent was the second quarter boosted by pull-forward effects in view of the U.S. tariffs?

I would say it wasn't very much the second quarter boosted, but the first quarter under pressure. We had some signs in Q1 where some project delays were there or some projects that were having a different timing, and that was something that put some pressure on there. We had some delays due to kind of still waiting for the development of the customers. So that wasn't pull-forward. It was just wait and see, and it started to come in the second quarter. So all-in-all, I think, the tariffs were not yet that much affecting us. We see it, and we are clearly checking it how the effects are evolving, but it has, again, plus and minus effect because sometimes you can produce something in the states that makes life easier. Sometimes you have to import it to satisfy demand. So it is something that is not that easy to kind of quantify again, but it wasn't really much a pull-forward effect coming from the U.S. tariffs.

All right. Thank you so much. So let's take a look at the queue. But by now, we have no virtual hands and no further questions. So dear participants with still a couple of seconds or minutes time, if you would like to speak to Judit and submit your question -- and it seems, Judit, you explained everything so well, there are no open topics left.

I was trying.

Yes, really good. So yes, and then I would say we will come to the end of today's roundtable. So maybe if a question arise at a later time, I guess, Judit, all the investors are free to contact you.

Happy to answer all the questions.

Absolutely. So thank you from my side, from our side. It was a pleasure to be your host. And also a big thank you to you, Judit, for your time and for presenting Semperit to us. I wish you all a lovely remaining day. And Judit, the final remarks belongs to you.

Thank you very much. I cannot add a lot. Thank you very much for your interest. Thank you for the questions. I hope I could raise interest. I hope I could introduce you to Semperit as a very agile despite 20 --- 200 years, a very agile company. And I'm happy to see you in real life or in other online platforms and answer your questions. So feel free to get back to me. Thank you very much.

Thank you.