Semperit Aktiengesellschaft Holding (SEM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Semperit conference call on the report of full year 2022. [Operator Instructions] It's my pleasure, and I would now like to turn the conference over to Mr. Haider. Please go ahead, sir.

Thank you very much, and good afternoon, ladies and gentlemen, and very warm welcome from Vienna. I am delighted to present to you the full year 2022 results of Semperit Group today. Together with our CFO, Helmut Sorger, who will take us through the financials in some minutes. Generally speaking, 2022 was a year of high cost inflation, surging energy costs, ongoing disruption caused by political conflict and the Corona pandemic still leading to shutdowns in China. As the CEO of the company, I am encouraged by all the positive engagement and strong support coming from our employees and colleagues. And this, at the time, not only of uncertain macroeconomic developments, but also of changing times for the future structure of the Semperit Group, which I'll explain next with the strategic and operational highlights at Slide 3. Among the highlights of 2022, undoubtedly, the agreed sale of our medical business to HARPS as announced on 16th of December is a key milestone of the implementation of our strategy. This provides us now with the opportunity to fully focus on the industrial sector, while at the same time, still acting in responsible stewardship for Semperit. It was always our goal to hand over our Semperit business in a very responsible way. And with HARPS, we have found a new owner, which will drive further the glove business in a very responsible way into the future. The sales price amounts to EUR 150 million cash and debt free. The completion of the first part of the contract which refers to the production of examination class and worldwide distribution facilities is expected by midyear. In turn, the second part of the contract for surgical gloves is related to our plant in Wimpassing, Austria and the packaging facility in Schuldschein, Hungary. They will still be operated as contract manufacturing exclusively for halves for up to 5 years from us as Semperit. Please note that the sale of Semperit implies a change in corporate financial reporting, which Helmut will explain in greater detail right at the beginning of his financial section. Even though we see these changes in the reporting structure, we, as a management, also keep and maintain the established segment fuel, as this is the operational dimension, how we are steering the company. Consequently, I will keep the focus on this view in the segmental analysis of the industrial sector, the major part of our continued operations. And at the same time, I will also briefly outline the performance of Semperit, which is a combination of continued and discontinued operations. As we currently see the business in good stewardship. It should enable a like-for-like comparison with previous years. Nevertheless, let me mention that the annual report provides all the details for different reporting purposes, including the separate reporting of discontinued operations and results in an as-if format tour. That means as if the separation will not have taken place. We hope this helps a better understanding of the scope and details of corporate changes. As to the industrial sector, I am delighted to report a significant increase in sales and earnings, and this against the backdrop of lower order intake in quarter 4, 2022 and continuing high inflation. At the back of this strong result, the Executive Board proposed a base dividend of EUR 1.5 per share in the conditional -- conditional additional dividend between EUR 2 per share and EUR 3.5 per share, which depends not only on the sale of Semperit, but also on further organic and inorganic growth opportunities. We plan to define the concrete additional dividend suggestion before the AGM. We continue implementing our industrial elastomer strategy to refine further our organic and inorganic growth momentum of Semperit. In line with our conventional approach of focusing primarily on the Industrial Sector, page 5, shows top line growth and quarterly reported EBITDA since 2019 to provide a benchmark of a normal year before the outbreak of the Corona. In this comparison, the 2022 performance of the industrial sector was outstanding, supported by a high order book and timely pricing measures, which impacted both top line and earnings. Our active pricing policy and disciplined cost management helped to offset margin pressure caused by general economic slowdown and consistently high cost inflation. 2022, quarterly EBITDA margin improved significantly compared with the two prior years. And this against the backdrop of softening demand and customer inventory cleanup starting in the second half of 2022. It is worth noting that our industrial segment follow different economic cycles. Our growth engine, Semperflex, for example, was facing a turning point in customer demand in quarter 3, 2022, already. Over the same period, our business, Sempertrans, benefited from a late cycle upswing. I will elaborate on some of the specific developments in the industrial segments over the next few slides. Turning to page and starting with Semperflex. Revenues were up by 36.7% and EBITDA by 60.1% year-on-year. Strong demand continued throughout the first half and output increased in all Semperflex plants, except China. Especially over the first 3 quarters, EBITDA was particularly strong, both in absolute and derivative terms. During the first half of the year, the combination of especially the efficiency enhancement and productive price adjustment helped to offset higher costs for raw materials, transport and energy, which started to ease in quarter 3 2022, although pressure on personnel costs continued. Softer demand and customer inventory reductions resulted in a slowdown in quarter 4, 2022. On the next slide, Sempertrans benefited from late cycle tailwind, which resulted in a strong price development for mining products and led to higher demand for conveyor and transport belts. As a result, sales were up by 45.5% and EBITDA by close to 3x year-on-year, including the EUR 4.7 million asset sales of the site in France closed in 2018. While facing higher input costs and a EUR 3.7 million positive deconsolidation effect, due to foreign exchange differences after closing the Sempertrans affiliate in China in 2021, higher volumes and price increases managed to offset the impact, with quarter 4, 2022 margins reaching 22.7%, including the asset sale. Semperseal was probably our most difficult industrial segment in 2022, largely due to the sharp economic slowdown in the construction industry. While we still managed a top line growth of 17.9% year-on-year, inflationary pressure on input costs could only be passed on with a certain time lag. In addition, EBITDA was impacted -- sorry, EBIT was impacted by a EUR 2.1 million impairment of machines and equipment in quarter 3, 2022, which, in combination with a tangible slowdown in demand, led to negative results in quarter 4, 2022. In terms of our regional diversification, I want to mention that the first production line in U.S. in Newnan, Georgia started in quarter 1, 2022, and the second line in July 2022. Being closer to our customer provides us with a strong foothold in the U.S. market. Finally, among the industrial segments, Semperform achieved a 22.7% top line growth on the back of consistent price increases and a changed product mix. However, we noticed that the order backlog started to slow down given the strong pent-up demand in 2021. Overall, we managed to keep EBITDA margin stable year-on-year. Also, our various business -- business units performed differently. Special Application benefited from the recovery of winter tourism, whereas we experienced lower demand from railway construction of our damping products or from the right goods and engineered solutions. Turning now to Sempermed on Slide 10. We present the results in the familiar format for you, which after the announced sale is a combination of continued and discontinued operations. In 2022, sales volumes and earnings marked a sharp decline as the market turned into a bias market at significantly lower market prices which was even aggravated by excess capacity, demand falling further and very high customer inventories in the entire industry. Against this backdrop, EBITDA was additionally impacted by high cost of raw materials, logistics, energy and personnel. Notable, in Malaysia, since quarter 2, 2022, and also provisions for gas contracts and inventory. The impairment of EUR 51.6 million announced end of quarter 3, 2022, was offset by a reversal of EUR 40.9 million in the context of the agreed sale of Sempermed in quarter 4, 2022. With this, let me turn to a summary of the contractual and financial terms of the Sempermed transaction on Slide 11. The new owner, Singapore-based HARPS is a Southeast Asian plus producer. This production facilities in Malaysia, and we agreed on a sales price of EUR 150 million cash and debt free on 16th of December. This is subject to customary price adjustment up on completion of the transaction. The transaction is subject to approval by the authorities, and we would expect completion by mid of 2023. We have agreed with hard to structure the deal in two stages: First, the sale of all production facilities for examination class in Malaysia as well as the worldwide distribution network by mid of this year 2023. And second, for up to 5 years, contract manufacturing for surgical glass in Wimpassing, Austria and the packaging in Sopron in Hungary on behalf of the buyer. In this context, let me emphasize that the management team of Sempermed is fully dedicated to the new owner and supports the transaction as we speak. With this, let me hand over to Helmut, who will take us through the financials.

Thank you, Karl, and good afternoon to you all for me. Now I'm with the company for almost half a year. So let me to share a few thoughts from the CFO's perspective and where I would see the focus on ores going forward. On Slide 13, I would like to start with conceptually outlining the financial framework necessary not just to implement our industrial elastomer strategy, but also to have a healthy operational setup. The most important thing that I learned in my previous career, it was a Belgian gentlemen, is that cash is king. And hence, I will prioritize disciplined cash management. I'm very fortunate to have inherited, if I may say so, a strong financial position at Semperit with solid cash reserves. However, I'm well aware that going forward, we will need to build on a healthy leverage. Secondly, our focus on an efficient capital allocation policy, balancing growth with sustainable shareholder return. And here, allow me to mention that the dividend payment for the fiscal year '22 represents a onetime deviation from our dividend policy and should be seen in the light of the successful separation of the medical business. Nevertheless, in the future, there will be periods when one pillar of our capital allocation strategy gets prioritized over the other. The essential element, however, our investments into the future of Semperit. To be more concise, I'm talking about disciplined growth investments with very strict return criteria. And only on that basis, we can provide an attractive dividend policy for the coming years. This brings me to the strategic focus of the financial steering of the company to achieve an efficient capital structure, which is key, both equity and debt financing need to play an active and a complementary role. At the same time, for 2023, this also means a responsible stewardship of the medical business in the light of a transition to a new owner. From an operational perspective, our focus will be on digitalization, on simplification and lean enterprise to achieve further efficiency enhancements. And we're working towards this as a company together with operations and also with central functions. In the wake of previous supply chain disruptions and inventory buildup, stringent working capital management remains key. You will see the numbers I present in a few minutes that we've made significant progress. It's still on our area to achieve further targets. Finally, at the time of high inflation and price pressure, our focus on cost control and structural adjusting the overhead cost base will be crucial to make our group fit for the future. After this introductory conceptual outline, let me now turn over the page to the intricacies of the IFRS 5 reporting and accounting treatment with a specific view on assets held for sale and discontinued operations triggered by the agreed sale of our medical business on December 16, '22. IFRS 5 specifies not only the accounting treatment for assets held for sale, but also defines the presentation and disclosure requirements for the discontinued operations. In the P&L, the focus is on continued operations, while discontinued operations will be presented separately at the earnings after tax line. The chart on this slide illustrates the moving parts in sequential order. It starts with the composition of segment results and shows you the reconciliation to the new setup with the result of discontinued operations of the segment Sempermed are carved out. Under the balance sheet, according to IFRS 5 assets are to be classified as being held for sale if they are to be sold within 12 months, which encompasses asset provisions, liabilities related to production in Malaysia and the global distribution of examination gloves. In turn, the cash flow statement reflects cash development of both continued and discontinued operations. Let me now show you how we apply IFRS 5 and which implications this had on our financials. Starting with the overview of our KPIs on Slide 15. We represent reported numbers in comparison with 2021, which shows a significant year-on-year increase for revenues, EBITDA for the continued operations. However, when including discontinued operations from the earnings after tax according to IFRS 5, the result turns negative following the strong decline of Sempermed's performance, together with impairments, transaction costs at Sempermed. This was also further combined with the effect of deferred tax assets having been written down as a consequence of the downturn of the business and the sale of sentiment. Lower earnings and higher taxes at our medical business had also an impact on the free cash flow as higher taxes were paid in '22 on the good results of '21, with the year-on-year downturn being at the same order of magnified as the case for the earnings after tax. I will come back to CapEx in a minute, but suffice to say here that we increased investments by close to 14% year-on-year. Over the page, we present top line developments by segments in total as-if format, which is basically the view from the segment report. And as-if no transaction had occurred, which should help you in the light of like-for-like comparisons with prior years. This illustrates, again, the tale of two stories we have presented in the past. With the industrial sector growing strongly, while results as the medical sector went steep decline as a result of the end of the special cycle. Overall, the as-if format shows a 10% decline in the top line growth despite revenues for the industrial sector being up by a very strong 32%. As you can see in the statement, the income statement has been extended to reflect the supply relationship between the companies of the Sempermed segments, as the revenue of the continued operations and the material expenses of the discontinued operations from this supplier relationship will, of course, continue to exist. The presentation is based on an incremental approach the elimination of income and expense, the so-called expense and income consolidation was not retained for this purpose. Taking past transfer prices into account, these adjustment leads to recognition of earnings in both divisions. If we add these adjustments, we arrive at aggregated revenues for continued and discontinued operations of EUR 1.1 billion. If we then deduct the EUR 324 million for the discontinued business, we come to the new sales figure for continued operations at roughly EUR 780 million. Once again, this last column is the figure that you're going to see in the income statement as well. If we now apply the same logic to the EBITDA, the negative result at Sempermed drags the group EBITDA in the as-if format down to EUR 90.5 million, which is 75% lower than last year. Within the industrial sector, I would like to highlight the double-digit margins for all, but Semperseal, the latter one facing difficulties in construction markets, as Karl has already explained. Compared with the 30.6% group EBITDA margin in '21, which was still largely driven by the excess demand for medical gloves in the first half of the year, the margin came down to 8.6%. This implies, again, the segment view that is still relevant for us, steering the operations until completion of the separation from the medical business. Nevertheless, I also want to point out that this number also incorporates the very attractive aggregated demand for the industrial segment at 17.1%, that will be the more relevant yardstick for the future. Well, again, checking the reconciliation, how to get from the segment view to the reported EBITDA, allow me to mention the adjustments here, which refer to transaction costs would relate the -- relation to the separation of med that are not part of the and leads together with the discontinued operations to an EBITDA of EUR 100.5 million. Again, this is the one shown in the income statement and gives you the new order of magnitude, which also needs to be seen in the light of the guidance going forward. If then focusing on continued operations only in comparing the major building blocks year-on-year EBITDA changes, the price effect was clearly the driving force behind the EBITDA growth. At the same time, cost of materials increased by EUR 95 million, largely due to cost increases for synthetic rubber in Europe, driven by higher gas prices or carbon black, which is an important pillar for us, driven by higher transportation costs due to resourcing in the light of the Russian-Ukraine war. No need to mention energy costs have increased significantly in '22 and personnel expenses, miscellaneous expenses added to the lower EBITDA. Logistics costs, I think this is important to note, started to ease compared with last year. But the rise in personnel costs from the general inflationary trend needs to be in consideration. On the next Slide #19. We look at the quarterly CapEx developments by segments. I would like to draw your attention to two major observations. As I've said before, we increased CapEx by 13.8% year-on-year to EUR 54.5 million. This was essentially maintenance CapEx as well as smaller growth investments with a particular focus on Semperflex and Semperseal. At the same time, we continued investing in Sempermed in a responsible stewardship, including the fourth quarter of '22, when we had agreed to the sale of our medical business. These investments into modern assets also clearly contributed to the attractiveness of this business. For the next year, we will keep maintenance CapEx stable at around EUR 50 million, but will add growth CapEx of approximately EUR 50 million, essentially for the Semperflex expansion of the plant in Odry. On Slide 20, when looking at the cash flow, which, as I mentioned, is presented as a combination of continued and discontinued operation, the impact from lower earnings and higher tax payments based on the performance of '21, notably at Sempermed, of EUR 62.1 million becomes clear. As a result, the free cash flow was 0, which implies a sharp decline if compared with the EUR 241 million the year before. While we had reduced CapEx to the absolute necessary level in the past, please note that we will now take a strong focus on organic growth in addition to maintenance CapEx. This is also something we wanted to indicate and introduce with this chart. On the one hand, we refer to the maintenance part of the investments. On the other, we will show separately the part that is spent for growing the industrial business by significant growth projects. In other words, we're preparing the stage for free cash flow before growth investments that we're going to present starting Q1 '23. Turning the page to the analysis of quarterly working capital development. I should note that due to the sale of Sempermed, we're not comparing the fourth quarter like-for-like with previous quarters as the working capital of discontinued operations amounted to EUR 36.3 million. As mentioned in the beginning, that stringent working capital management remains key. Let me conceptually explain the main focus area. Given previous supply chain disruptions and shortages in raw materials, we decided to build strategic reserves for scarce resources like wire rods and carbon black to enable continued production, but of course, this decision resulted in structurally higher levels of inventories, but safeguarded profitability. At the same time, accounts payable have been reduced in relative terms, while some outstanding receivables were paid in early January only as some of our customers equally tried to manage their working capital and apparently felt pressure to do so. So it will be probably take a view would be probably taking a few quarters to make a comparison for continued operations meaningful, but rest assured, this remains a priority for us. Finally, on the next page, the balance sheet remains robust and the financial position is strong with cash and cash equivalents amounting to EUR 107 million as of December 31. We also have available credit facilities of EUR 90 million. Thus in all, our strong financial position opens up ample opportunities for organic growth but also M&A. In my introductory remarks, I had mentioned that even though we currently are cash positive with a net cash of about EUR 54 million, we're looking for a healthy leverage in the future. Going forward, we aim for an efficient capital structure with a healthy leverage position with both equity and debt finance plan active and complementary role. As to the 2022 dividend, the Executive Board proposes a dividend of EUR 1.50 per share, which will be paid in May, and a conditional additional dividend of EUR 2 to EUR 3.5, depending on the sale of Sempermed. The exact amount of the dividend proposal depends on the economic outlook and organic and inorganic growth opportunities becoming more substantiated. The payout is expected in the fourth quarter. With this, I've come to the end of my presentation and would like to hand back to Karl for his final remarks.

Thank you very much, Helmut. And let me first outline our management agenda for 2023 on Slide 24. Having almost completed the first quarter of 2023, I can truly say that we had an encouraging start in the industrial sector so far this year. We, as the glass market, continues to be burdened by excess inventories, which applies across the entire market. From our perspective, recessionary fears, early in the year, have succeeded, but we clearly see a slowdown in economic activity and continuing high inflation. Our industry still needs to go through an inventory cleanup. At the same time, sectors, like the construction industry, currently face structural challenges like labor shortages and falling demand, for example, in Austria or Germany, which are core market for us. As another trend, we observed growing price sensitivity and ongoing cost pressure multiple in personnel, but we also expect this for energy and raw materials later in year 2023 towards the winter season. At senior management level, we continue implementing our industrial elastomer strategy, which is gaining new momentum for inorganic and organic growth, and we work on further strategy refinement in 2023. As to the sale of our medical business, the agreement was signed on 16th of December, as I said, and the first part of the transaction in relation to exam gloves is expected to be completed by mid of 2023. As outlined earlier, the second part of the transaction -- with respect of surgical gloves in Austria and Hungary, was agreed to remain with separate under contract manufacturing for up to 5 years. Finally, on Slide 25, let me summarize our underlying assumption of lower earnings, given subdued consumer demand and further inventory cleanup. While 2022 was characterized by a very high overall demand level and a clearly positive price and margin development, we see the 2023 EBITDA forecast in the range of EUR 70 million to EUR 90 million. As already envisioned in earlier calls, we continue to plan CapEx of EUR 100 million in 2023, equally shared between maintenance and growth investments. This compares with EUR 54.5 million in 2022, which was mainly maintenance CapEx. As to the dividend -- sorry, the proposed EUR 1.5 per share base dividend we made to the 2022 financial year, and will be paid in May 2023. By the conditional additional dividend is subject not only to the sale of the medical business, but also further organic and inorganic growth opportunities and will be paid in fourth quarter 2023. With this, we are coming to the end of our presentation. And Helmut and I are now available for any questions you might have.

[Operator Instructions] The first question comes from Sven Sauer from Kepler.

Maybe the first one, if I could -- you could provide some information on the Sempermed impairment and its reversal. I was just wondering, in Q3, there is an impairment of EUR 50 million for Sempermed. And 3 months later, even though price levels are not really changing or have not really changed, there is a reversal of the impairment. And I understand this is because of the acquisition, but I just wanted to ask if there are any fundamental differences that you saw in Q4 and Q3 regarding ASPs and the outlook for the glove market?

Sven, Helmut speaking here. I can take that. Basically, the impairment in Q3 was done based on the market outlook -- the revised market outlook. It was basically done to reflect not only the value in use, but the fair value less cost of disposal, which was higher than the value in use. The reversal of the impairment, however, was based on the transaction that had already been signed on December 16 and the purchase price formula from that transaction. So basically a substantiated fair value less cost of disposal. I hope this answers your question.

Yes. That helps. I was wondering, can you provide some information? I mean, I know it's not going to be a hard number, but maybe some indication how the corporate segment will develop with the new business focusing only on the industrial sector and divesting the Sempermed business?

Sven, Haider speaking. A bigger part of the business will be Sempermed. And therefore, we are refining our industrial strategy in the next couple of months and our corporate, let's say, a situation will be analyzed as well. But you know as well, and I repeat, organic growth is our topic for us and inorganic growth as well M&A. And therefore, we need to consider all these aspects together.

Okay. Okay. And the last question, then I'll go back in the line. Regarding the CapEx, so EUR 50 million in maintenance in 2023 and EUR 50 million for Semperflex and the remaining 60 million of the EUR 110 million, which was announced last year. I assume this has been probably going to be invested between 2024 and 2027?

That's correct, yes. And just let me explain this because we introduced this new category of growth investments. We're going to talk about maintenance CapEx, including smaller optimization in both investments and the EUR 50 million announced for next year for '23, I'm sorry, is substantial growth investments also as a preparation how we're going to report the free cash flow going forward.

Okay. And just a follow-up on the EUR 50 million maintenance CapEx. I mean I understand there's now a completely different management and different structure and different strategy. But just looking at the CapEx from 2020 and 2021, it was around EUR 25 million and EUR 36 million. So I was wondering why is there such an uplift in maintenance CapEx now going forward?

Historically, there was a backlog. I tried to explain this basically that we were saving. And this is now, of course, the time to do optimization measures, to do maintenance measures and to do smaller efficiency enhancements. And that's what we invested, what I mean we invest into the future.

The next question comes from Christian Obst from Baader Bank.

First question is concerning employees. So at the end of last year, you had approximately 7,000 employees, if I got it right. There are approximately [ 2.8000 ] related to Sempermed. So am I right that you are going with approximately 4,000 employees into the new year? And how will this affect your cost level going forward?

Haider speaking, employee, you're right, we had over 7,000 people in Sempermed and around 2,500 people will be handed over to the new owner. And then the rest stays with our industry segments for the future development of the company. Of course, you thought about inflationary pressure in the -- in certain countries, that's the reality. And you know the inflation and we are facing the same as other industries in the different countries.

But am I right that productivity per employee was a little bit higher maybe in the industrial space than in the [indiscernible] Sempermed? So this has some kind of an uplift effect when it comes to productivity.

If you refer to, of course, the cost I think I want to draw your attention that, of course, with the first closing of Sempermed, the majority of the colleagues are employed in the plant in Kamunting, so there's an element of wage arbitrage. I mean you will have the discontinued segment figures in the notes of the year-end question. And you're absolutely right that in the Industrial segment, of course, there's a different degree of automation based on the segment. So here, this automation level certainly plays into the role of the productivity. However, of course, since we're manufacturing mostly in Europe, in the Industrial segment, of course, with the exceptions of India and China and Thailand is that you have a certain inflationary component due to the increasing wage levels.

Then when it comes to Semperseal, was kind of a disappointment going into fourth quarter, but also when I see some kind of [indiscernible] developments since we have Semperseal as a different entity, going forward, you talked about some kind of a time lag of the implementation of additional price increases. And we do not have the impairment in '23. So should this lead to a much better margin level even in the first half of '23 for the year?

I take this question, Karl, Haider. You know the construction industry in Central Europe is under pressure, especially in Germany, certain real estate group really stopped to build apartment houses and our customer base are the system provider for [indiscernible]. And therefore, from that point of view, it -- the volume went down up from mid of last year with a certain percentage. And from that point of view, the whole industry, he's under pressure here. Therefore, we have implemented cost control measures and increase efficiency to compensate this, but the market impact is quite reasonable. And therefore, we see towards mid of this year a little bit of a better outlook, but it's too early to say it goes at the end.

Okay. Okay. And then when it comes to your guidance, so how much have you included now for negative impacts coming from Sempermed for the remaining Sempermed?

The guidance is basically something that we intend to be for the continued operations. So this does not include the Sempermed business. Internally, as we've already said, we continue to steer the business based on the segment view according to our [indiscernible]. And so it will be an issue. But for the guidance and for the reported EBITDA, it's not an issue.

So in the EBITDA, there is nothing included in the remaining Sempermed business you have in your books is almost in 0 EBITDA, more or less?

No, no. I think you need to differentiate. There's the discontinued operations, which is basically the exam glove manufacturing business in Kamunting and the global distribution business, but we will continue to manufacture surgical gloves in Wimpassing, in Austria. So this the Wimpassing operation is under the continued operations and will be reported as such. I'm just talking about the discontinued part, which is affected by closing one, '23.

But the remaining part, the impact of what we expect there more or less 0 for the contribution?

Yes. The remaining part, give or take.

The next question comes from Markus Remis from RBI.

You've been talking about destocking, I'd be interested to get a sense where you think the destocking cycle is currently. So will it be something that still impacts your Q2? If you could maybe shed some light on that effect on a sales divisional basis where you feel stronger and where you feel maybe lasting longer? Any thoughts on that would be helpful.

Karl Haider, I take this question. Destocking effect in the supply chain with our customers is the reality. Last year, certain panic or, let's say, buying happened according to all this logistical issue around the globe, and we faced this in Semperflex and in Semperseal mostly. Sempertrans we explained, it's a different cycle and can perform with our product mix is, again, different. And therefore, we face this in flex and in seal. And we expect certain washout of this, let's say, stock chain in the system will have towards mid of this year.

But then presumably lower burden in Q2 and in Q1. Just trying to reconcile kind of the statement you made regarding the encouraging start. Is that say, mostly related to auto momentum building up again? Or is it, I don't know, relate to your pricing power?

Yes. It is not from the order intake, it is from our pricing strategy last year, which we are still, let's say, rolled over to this year. But you can imagine, if you see the different indices in the -- if raw materials or energy pressure is on us to reduce prices. And therefore, I would say the second quarter is a little bit, let's say, under pressure. And we believe in quarter 4, it's getting a different [indiscernible].

Okay. And then on your EBITDA, I mean, at the upper end, using the top end of the [indiscernible] would be pretty much equal to the divestment policy. I mean would you -- what would you say to an interpretation of saying that any bigger M&A or any meaningful M&A has become less likely since now you've opted for the -- to return the cash to the shareholders.

On the dividend -- I mean, certainly, we have split it in two, basically. One is the base dividend of EUR 1.50 share. And the second component is the additional dividend, which is basically the expected price that we're going to receive for the med business. We still have cash on the balance sheet or in a negative net debt position, meaning a net positive cash position. And we have, therefore, no leverage on the balance sheet. And I would not rule out M&A or growth investments by competition. And if you look into the markets, and I'm sure you know this much better than others, multiples have come down significantly. Private equity is having, I would say, less cases. So there might be an opportunity for us to do something.

Okay. Just looking back since we spoke the last time, so fuel cost would you say that your M&A pipeline has become bigger? I know you won't give any indications, which I absolutely do not expect, but is there anything you can tell us where you stand in the process, say, a couple of targets come up because of, I don't know, some distress here and there? And I mean, how should we think about the KPIs you're looking at targets you to consider yourself as a buyer for turnaround cases as well?

We don't rule out anything. I mean it just needs to be a disciplined investment. It needs to be an attractive business case, but you will understand that I will not comment on our fund at the moment.

All right. Okay. And what would be the maximum stretch of -- you would do to the balance sheet, i.e., what kind of debt metrics?

I would say, if you look at reasonable net debt EBITDA ratios, I'm inclined to give you one, but you know well what reasonable measures are. I mean, 2.5x, 3x is certainly not impossible for us.

Okay. And in your [ ROCE ] agenda that you outlined, you moved towards total return criteria. Can you maybe shed more light on that, which yardstick that is? And at which level is ROCE or cash flow return on investment or whatever?

We have these criteria. We have this internal criteria, and we are going to refine them in the light of our strategy refining process.

Okay. But you're not inclined to share them?

No. No.

Sorry, all right. And final question, again coming back to the med disposal. I mean, just in case there is a reason for a delayed closing, which means you would have to their higher losses than initially assumed. Would that impact the purchase price?

So we are in a good track on our merger clearances in the different countries. And if I look to the market dynamic of class, we see a little bit of a better outlook towards the second half of the year. And therefore, I think we are very optimistic to close it as planned.

And just to add to your question with regard to the purchase price formula. Of course, I mean, it's a standard purchase-price formula that has a working capital and net debt component.

The next question comes from [indiscernible] from [indiscernible].

I just wanted to clarify a point. I understood in your presentation, which you gave in the beginning that you're planning to announce a special dividend before the Annual General Meeting. Is that correct?

It's correct. Before the annual shareholder meeting, we would like to specify this additional dividend to this 1.5.

The next question comes from Roland Könen, Value-Holdings.

I have three additional questions, add-on questions. First one is on the additional dividend question. As one condition is the closing of the transaction. Are you confident to get closing done until your AGM at the 24th of April. As said, you expect there is closing in the second quarter?

No, I think in the position we said several times, the closing one means we're having over the examination class and the distribution and legal entities will be towards mid of this year. Closing one will be not done until the general assembly meeting.

Okay. The next add-on question is on the maintenance question. As I have learned that the cash flow reflects the cash development of continued and discontinued businesses. And the CapEx '22 was EUR 54 million, including roughly EUR 20 million for the mid business. So your guidance for the CapEx of EUR 50 million maintenance CapEx in '23 is also including the med business. Is it right?

No, it's for of continued operations, not including the main business.

And the third one would be on the discontinued operation as you have to book the net earnings of the sold business until the closing. Do you have to -- or do we have to think about roughly the same earnings contribution for the discontinued operations until the closing as we have seen of this business in the second half of '22?

We are not commenting this as I described before. The supply chain is still overstocked. And towards mid of the year, we get a little bit better view on this.

There are no further questions at this time, and I hand back to Mr. Haider for closing comments.

So thank you very much. And I would like to emphasize, again, major step for Semperit and for Sempermed what we have achieved. And we are in the middle of the implementation of the strategy towards the industrial player in the elastomer rubber industry. And I think that's it, and thank you very much for all your listening, all your good questions. Thank you. Bye-bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.