Semperit Aktiengesellschaft Holding (SEM) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome from Vienna to our Full Year 2023 Results Presentation. As always, we appreciate your interest for our company, Semperit. With me in the call is our CFO, Helmut Sorger, who will evaluate on the financial details in some minutes. Hence, I will start with briefly outlining our strategic focus, the company's vision and new structure setup before going into the operational update. In this context, I will also spend a bit more time on explaining the 2 main investment projects where we currently see our major growth potential. Let me start with summarizing on Slide 3, the main tenets of our corporate identity and strategic DNA since inception 200 years ago. There are only a few industrial companies in Europe whose roots go back to the 19th century, and Semperit is one of them, and we are celebrating our 200th year anniversary this year. Our impressive history is based on strong success factors such as globalization, innovative spirit and customer orientation, technology and innovation. While seeking with our operate destiny as a specialist of industrial elastomer applications, we have always aimed for being a pioneer in new technology and innovation, while at the same time, expanding our global footprint and product portfolio. Over the page, we highlight the 4 main strategic pillars underpinned by important megatrends and define the vision and mission statement of our Semperit company. The key themes I would like to emphasize here are not only our leading market position and strong industrial platform, but also the ambition for cutting-edge technology supported by a resilient business model. This would not be possible without the high qualification and motivation of our workforce and a customer-centric approach in marketing, sales and industrial solutions. Along with this vision, we have reached 2 milestone last year. First, the complementary expansion into liquid silicon rubber through the acquisition of Rico Group; and second, the streamlining of our organization through the setup of 2 divisions and a strong focus on cost leadership and operational excellence. Slide 5 should be familiar to most of you as we show a new divisional structure, which involves around Semperit's two main business models, one being the commodity-driven, highly standardized volume business of Semperit Industrial Applications, where we aim for cost leadership and a high degree of unification of products, processes and equipment supported by sales excellence. The other being innovation and technology-driven Semperit Engineered Applications with the high level of customization and a focus on attractive niche markets. In contrast to the commodity-driven business of Industrial Application, here we are dominantly dealing with a project and tender business. As we had announced earlier, this new divisional structure aims to reduce complexity and to scale up our business, and is ideal platform for focused organic and inorganic growth. On the next page, let me summarize again the key strategic rationale of each new division. Starting with the separate business of Semperit Industrial Applications on Slide 6, for Hoses, I would like to highlight the aim for cost leadership and an enlarged product range. The capacity expansion at our plant Odry is not only crucial to maintain our global market leadership in hydraulic hoses, but at the same time, setting a new efficiency benchmark for cost leadership, which we plan to roll out to other plants as well. In addition, expanding our competitive product range, we also focus on new applications. As for Profiles, in addition to our strong position in Central Europe, we plan to strengthen our position in the European construction and industrial markets and also increase our footprint in North America. From an ESG perspective, we started to use a portion of reclaimed materials to strengthen our focus on [ circularity ]. On the next slide, let me highlight the main strategic ambition for each business unit within Semperit Engineered Application. Belting continues to do well, and we aim to exceed global market growth without expanding our existing capacity, by concentrating on the operational side and efficiency. We have a coherent product strategy based on heavy and medium strength steel belt as well as performance textile belt. Within Form, the combination of portfolio streamlining and margin equities, Product-Market-Combinations should help to further transform this business into attractive and profitable niche operation. This can be scaled up for the extension of end-to-end application know-how in order to grow in our customized product market combinations. And of course, by automation and streamline cost as well as the geographic expansion within Europe, but also into the Americas and the Asia Pacific region. Finally, Rico would become our engine for organic, and later possible also inorganic growth, with its focus on engineered technology, innovation and adoptive growth niche markets. We will come to Rico in more detail later. Looking back over the last year on Slide 8, we highlight the key milestone and achievements, which we have followed in the course of last year. Following the acquisition of Rico Group and the sale of Sempermed, we have refined our strategy and met the full year guidance despite economic headwinds. In terms of capital return, we have rewarded long-term shareholder support by paying not only a base dividend, but also a special dividend after the sale of Sempermed. Let me illustrate our new strategic growth investment with two specific examples. On Page 9, we show a EUR 40 million capacity expansion at Rico to be completed at 2028. The acquisition of Rico Group has provided us not only with a complementary offering in high-performance advanced materials focusing on LSR, liquid silicon rubber, but an additional technology age in injection molding tools and automation. Going forward, we will look for smaller bolt-on acquisitions to leverage our tooling expertise and exploit a significant market growth in silicon products in Europe and U.S., which is currently estimated at the 7% CAGR by 2027. Turning the page, we show the capacity expansion of our hoses business in Odry, Czech Republic. We have fine-tuned the project since it starts in 2022 and just expect it to fit to an even better pace to the market development. The EUR 100 million ramp-up of new production facilities in Europe's largest hoses plant will result in the most modern hose production facility, which with a high degree of automation, supply chain efficiency and sustainability. It is worth mentioning that the new production will significantly reduce CO2 emission and lower transport costs and full capacity will be in place by 2030. With this, let me move on to the review of our operational performance, starting at Slide 12. Here we show, on a pro forma basis, the revenues did by division. With the share of Semperit Engineered Application increasing from 36% in 2022 to 48 percentage in 2023, largely as a result of Rico Group and the less cyclical nature of the business in the Engineering Application division. In turn, Semperit Industrial Applications declined from 57% in 2022 to 46% in 2023. As this more commodity-driven business was more heavily impacted by economic downturn, and I would like to mention here the construction industry in Europe. 6% is our contract manufacturing of surgical gloves in Wimpassing, for a new owner of our gloves business called Harps. Over the page, we present top line and earnings development for Semperit Industrial Applications, with sales down by 27% year-on-year and EBITDA by 47 percentage, largely as a result of more -- a lower volume despite the price levels still being resilient and supportive to the profitability. The chart on the top illustrates the cyclicality of this commodity business. And since the third quarter of 2022, reflects not only a destocking effect that is now coming to an end, but also slower economic growth. In terms of segments, hoses has -- was faced with restrained customer behavior, resulting in lower market demand and short cyclic weaknesses. In turn, Profile was particularly impacted by the weak construction industry, implying an order backlog at a low but stable level. Our overhead cost measures have been effective and going forward. We continuously focus on customer intimacy and economy [ of scale ]. As to Semperit Engineered Application on Slide 14, revenues were up by 24% year-on-year and EBITDA by 36 percentage supported by tailwind from mining, lower raw material prices and the Rico contribution. At the same time, prices remained high, while our portfolio optimization, especially in the form business supported margins. The chart on the top shows a more resilient technology-driven business. The Rico's sales contribution of EUR 37.2 million since August 2023, EBITDA adjusted for one-off effects from the acquisition of EUR 7.6 million with good demand in health system, food products and mobility. In terms of the business units, belting still benefits from late cycle demand in mining, which supports pricing and further order intake. In turn, form was particularly strong in mountain application and very solid in aftersales handrail business. Having stepped up our effort in ESG reporting and performance in recent years, slide 15 provides a summary of major strategic initiatives and achievements in 2023. I would like to highlight here not only our ratings by EcoVadis and CDP, but also our climate scenario analysis and the amended ESG strategy with a stronger focus on diversity and inclusion. As you can see from the chart, we have clearly made progress in our environmental-related performance during the last 3 years. Nevertheless, we still have scope for improvement. In turn, targets in the field of social KPIs and especially supply chains and compliance measures have outperformed over the last 3 years. As the CEO of the company, I'm particularly proud about the comprehensive training provided for our employees and a strong track record in human rights and business ethics. With this, I hand over to our CFO, Helmut to take us through our financials.

Thank you, Karl, and a warm welcome from me as well. Let me start with our financial highlights. I think a slide well known to you, with some updates in there actually. We started the year ensuring financing for further growth by negotiating extending finance lines of EUR 360 million in order to support strategic growth in our industrial transformation. What we did, we also adjusted our overhead cost base. We heard it before, we're a highly cyclical business in the SIA division. So a good way of thinking is to adjust the overhead cost base by the principle of lean management and cost leadership. We announced in midyear that we have savings as a target with about EUR 10 million run rate and we actually delivered already EUR 5.8 million in a year-on-year comparison. Since I've started as the CFO of the company in October '22, our main focus has been on cash, to finance future growth and also provide shareholders with a decent return. We've paid out EUR 92.6 million dividends, a part of a base dividend part as special dividend after the sale of Sempermed, but we still have a very strong balance sheet with financial net debt amounting to EUR 115.2 million that equates to a net debt-to-EBITDA ratio of 1.6x. I will elaborate on our capital allocation policy in more detail at the end of my presentation. But now turning the page, let's head to the overview of financial KPIs in 3-year comparison. The top line of the continued operations was down 7.5% year-on-year and EBITDA by 28.5%, still achieving a formidable double-digit margin despite low volumes and the pressure on fixed costs. This translated in a 44.3% decline in EBIT and a 35.2% lower earnings after tax, and I will come to the moving parts in a minute. Free cash flow here is defined before the sales proceeds of Sempermed and strategic growth projects to provide us with a more clean base for comparison. Similarly, CapEx is defined before M&A and without the EUR 165 million investments in the Rico Group. Please note that we provide greater transparency by showing the details for CapEx with EUR 36.2 million for maintenance and smaller growth projects and EUR 19.4 million for strategic growth project such as the DH5 project in Odry. And I will come to that later. Over the page, when compiling the last 12-month revenue development of our industry divisions, starting from Q1 2020 and plotted against the EBITDA margin for the same period on Slide 19, we see a consistent top line growth since Q1 '21, having reached its peak in Q1 2023. Since the first quarter of '22, this was closely tracked by an improved EBITDA margin, which started to revert in the second quarter of last year. In line with the cyclical downturn and combined with inventory reduction in the business channels, while volumes were in decline, we managed to keep prices stable with margins being further supported by lower prices for raw materials in energy. Please note that Q4 '23 was partly impacted by seasonality, a planned downtime during the winter season and cost savings. Nevertheless, the top line being still above the Q2 2022 level, but margin's lower. We now take a much stronger focus on slimming down the organization and enhancing efficiency. The next slide is probably most interesting to you for understanding the building blocks for our year-on-year changes in reported EBITDA. In this context, we clearly benefited from the earlier price increases as negotiated in the previous year and most importantly, from lower costs for raw materials and energy, but also logistics which was more than offset by the deep volume decline in inventory adjustments. And the contribution from Rico and cost savings largely offset wage inflation and miscellaneous items so that we arrive at an adjusted EBITDA of EUR 81.7 million before one-off items and these were predominantly related to transaction costs with regard to Rico, personnel and IT expenses for the carve-out of the medical business. Disciplined and stringent working capital management has become a major pillar of our finance strategy, as you can see on Slide 20, with trade working capital as a percentage of last 12-month revenues amounting to near 15.9%, well below previous months. This is largely a result of lower inventories in the wake of a generally destocking in our industry, but also a decline in trade receivables on the back of lower sales. This we could partly offset from an increase in trade payables. There's some cyclical effects in there, but still it was a major undertaking to get to that point by initiatives in working capital management that we've initiated in Q3 '23 and that we're going to continue over the course of this business year. Going forward, we'd expect trade working capital to stay below the 20% target, but we've -- get more ambitious having reached the 15.9%, of course. I would like to mention that we've initiated everything to start the factoring of our accounts receivables. We have not used it in the business year '23, but we started using it in the beginning of 2024. Turning the page, we present CapEx for '23 in its major constituent parts, as I have mentioned earlier, when excluding the EUR 165 million investment in the Rico Group, we arrived at a total CapEx of EUR 55.6 million or a 2% increase year-on-year. While maintenance CapEx and small growth projects amounted to EUR 36.2 million, the important part is EUR 19.4 million CapEx for organic strategic growth, which is essentially the expansion of our DH5 hose plant in the Czech Odry as well as the Rico plant in Thalheim in Austria, which Karl had discussed earlier. Overall, this results in total strategic growth CapEx of EUR 184.2 million, including the Rico acquisition. Going forward, we'll report both parts of the CapEx, organic and on the M&A activities. On the next slide, we show the moving parts from operating cash flow to free cash flow with maintenance CapEx being the major building block to arrive at EUR 26 million free cash flow before the sale of Sempermed. When then including the proceeds for the sale of the Medical business, free cash flow adds up to EUR 112 million in '23. Please bear in mind that other items like net interest payments and other investment cash flow might change over time, notably the Central Bank rates. As we have been net cash positive in previous years, the chart on Slide 24 should help to understand the year-on-year change towards a net financial debt position of EUR 115.2 million by the end of 2023. A strong operating cash flow of EUR 66 million, the net proceeds for the sale of the Medical business of EUR 85 million in addition to the 54.2 million net cash at the beginning of '23, were essentially the financial backbone for us being able not only to finance the Rico Group acquisition, but also our CapEx in '23. The EUR 92.6 million for the dividend accounted for most of the paradigm shift in net financial debt. Given the net interest rate environment and our strategic growth targets, we feel that a new balance between equity and debt finance is more appropriate. The ladder development is summarized in a more detail on Slide 25, with equity ratio having changed from 61.5% in '22 to 45.3% by the end of '23. All I would like to highlight here is our continuing strong cash position of EUR 113 million and the EUR 360 million new financing arrangements which we partly drawn for the Odry DH5 extension and the Rico acquisition by year-end. With this firepower, we're in a good position to continue with the strategic [ predictors ] of our industrial transformation. And let me, therefore, summarize at the last page, the main building blocks of our capital allocation policy. We divide here between normal investments finances by their operating and other investment cash flows and growth investments and shareholder return financed by the free cash flow. While the maintenance CapEx is essentially earmarked to maintain and enhance our existing industrial base, organic growth CapEx for strategic projects, where the extension of our hose plant in Odry or the Thalheim site, combined with the M&A activity account for major growth projects. Suffice to say that shareholder return in the form of dividends will remain a part of our capital allocation policy. Please note that these constituent parts are in fair balance and priorities of capital allocation can shift over time, depending not only on external macroeconomic factors, but also strategic growth opportunities. With this, I've come to the end of my remarks and hand back to Karl for his closing statements.

Thank you very much, Helmut. And I continue with the market outlook on Slide 28. As mentioned before, the current cyclic downturn has a particular impact on our commodity driven business of the division Industrial Application, which is mostly evident in the weak construction in yellow good industry. Here we have still limited visibility this year, '24. In turn, Engineered Application benefits from the diversified markets with different dynamics and its strategic focus on technology and industrial solutions, including mountain application, mobility and healthcare. Overall, our assessment is that we are currently going through challenging market condition with first green shoots expected towards the end of 2024 at earliest. Turning to our management agenda on Slide 29, as we have implemented our industrial strategy with a distinctive focus on two competitive business models. We keep our focus on profitable growth while managing the current economic downturn. While anticipating ongoing top line pressure, we try to address this for share of wallet gains and various cost programs and uncertain stiffness on prices. Most importantly, the key focus remains on simplification, lean management and operational efficiency, as Helmut just has outlined. Over the midterm, we aim to set up a new growth platform for technical solutions and cost leadership. On the next slide, we provide you the first guidance for '24. The full year EBITDA expect EUR 80 million and CapEx of EUR 70 million, that later will be divided between 40% growth CapEx and 60% maintenance CapEx in small projects. Despite the ongoing economic headwinds and limited visibility for 2024, we have the proposed dividend of EUR 0.50 per share. Management wants to signal not only its business confidence, but also strong conviction in this industrial strategy and future growth. In this context, we have summarized the 5 tenets of our investment proposition on Slide 31. With a key focus on market leadership, innovation, our resilient business model and cash generation capacity. This links back to our strategy outlined we have started this presentation with and the market will ultimately charge us on those criteria with our key focus on being a value play with a recalibrated platform for future growth. With this, we have come to the end of our presentation, and Helmut and myself are now available for any questions you might have.

[Operator Instructions] and today's first question comes from Christian Obst with Baader Bank.

First of all, I'd like to understand the growth plan within the two divisions. So one is, of course, the expansion plan in Odry. So why do you expand that until 2030? And what can we expect in terms of CapEx for the ongoing years? And when do you expect to ramp up something? So when do we see a positive contribution from that side? And is there any idea or chance that you will close down other facilities to keep the entire capacity a little bit into [ better ]. This is the first question.

Thank you very much, Mr. Obst for this question. Odry, we decided to retune a little bit to 24 million hydraulic hoses and we will relocate spiral hoses towards Odry to have all our, let's say, expertise and operational efficiency in Odry and the biggest hose production site in Europe. We continue to ramp up this up from '25. This means you asked when is the first positive contribution, it will be '25, because the spiral hoses will be located this year and goes online straight after, let's say, implementation there. And then, of course, step by step according to the market demand, the facility will be filled with the machines. And please remember, we had [ 150 ] million hoses produced in the, let's say, high peak season 2 years ago. And we had not one single meter capacity left over. And we had lead time to our customers, which were far too long to our customer base. This means this capacity is needed to be the leader in this material, in this technology, in this product in the future because we believe strong in the market and we know the hose market is a cyclic market, and let's say, the peak is coming again, and then we are ready to support the market at the moment.

And to add to that, your question with regard to CapEx, the total project volume is going to be EUR 100 million. Starting with the building hose, which is completed now and will be finished ultimately in May. Then the spiral hose production will be set up operational by the end of the year and productive beginning of '25 and contributing in '25. Odry is basically a site with five plants then in hydraulic hoses. It's a highly cyclical commodity. And in commodity cost leadership is a big advantage and a mega factory with regards to the economies of scale like Odry is a huge benefit with I don't need to talk about the fixed cost base on fixed cost coverage that we have. What we do from this project, as we ramp it up, of course, automation comes into play, a big deal of automation, which leads to cost advantages. And of course, lessons learned and experience gained from the automated processes will then be also implemented in the other factories on the Odry side.

Okay. Two additional questions to that area. How much of the EUR 100 million you have spent so far? And how is it then allocated over the years going forward?

Construction has started in '23. So the EUR 19.4 million that we show a strategic growth CapEx, about 60 -- a little bit more than 60% of that is for the Odry expansion. And we continue to spend as you see in the CapEx guidance in the year 2024. This is still the creation of the building, finishing of the interior installation only in that part of the buildings that would be operational. And then we ramp it up according to market demand. That means one step in '26, another one in '27 until the full capacity is according to plan available in 2023. If the market recovers earlier and the capacity is needed, we're definitely ready to do that earlier.

Okay. You're a little bit flexible on that side.

A little bit, because of course, the lead times for equipment are to be considered. Can be 18 months.

Okay. Almost the same area of questions concerning Rico. So you are investing again until '28 there. So why is that also so long? And as I understood it right, Rico was not fully utilized until now and it is in some kind of an expansion phase. So maybe you can give us a little bit more granuality where you see the possible driver for increasing of profitability maybe in '24 and '25? So is this new orders or prices or higher utilization rate? Or what is the main driver here for profitability in the next 2 years? And then what is the more granular expansion path until '28?

So thank you for these questions, Mr. Obst. When we acquired Rico last year, the pre-owner already decided in Austria to expand the capacity with additional, let's say, production [ hole ]. It's a free base, which injection molding machines automation can be placed for new tools, new, let's say, products for new customers. It was finished more or less when we take -- when we took over Rico, I would say, 70% or 2/3 and it was finished then in October and the first ARBURG machines could be transferred from a leased building nearby to this new production building. As we speak today, I would say 80% or 70% of one bay is filled. The rest of the bays are still empty and waiting for new tools, new automation with new customers because the value chain of Rico is your -- a customer has a problem with a certain, let's say, device and need liquid silicon or other polymer product or elastomer product coming to Rico. Rico is designing the product, is making the prototype of tools and product, then producing the high, let's say, advanced tool with many, many cavities and then produce it in Austria, Switzerland or in U.S. This is the value chain. And when you are having a global customer, is it one from Australia, is it one from U.S. or from Europe, then the customer has two choices, buying the tool from Rico and produce by themselves or buying the tool by Rico and let produce by Rico and this is exactly why the expansion was needed because the most high advanced tools in this industry is made by Rico. This means, as example, 258 cavities shots in 12 seconds. This is the record, I would say, shown last year in exhibition with ARBURG, and the second fastest was 128 in 26 seconds. This means when there's a problem in this industry, the customers coming to Rico helping to solve the problem. And this is the expansion in Thalheim, the building is ready, not filled yet because we want to fill it with profitable business and not just fill it, and this coming step on step the next years into this factory. This means the biggest part of this EUR 40 million, which we described on the slide is already spent. And a smaller part is in U.S., in U.S. and Florida is SIMTEC, which is part of Rico, and there was one big building. And so far, Semperit or SIMTEC has leased on the half of the building. And it was nearly a condition when we took over Rico that we need the second half because there's also demand in U.S. market on health care, automotive, et cetera. And luckily, in February, just a couple of weeks ago, we consign the lease agreement for the second part of the building that we have the opportunity to extend there as well. The CapEx for this is EUR 2 million to be ready -- adjust the building to be ready to harvest, let's say, the potential in the U.S. as well. Switzerland, we have a plan, it's a more long-term plan. It's the beauty factory in Rico, very high margin in health care, a special customer base and the space is limited. And so we will evaluate the options and then we will decide, let's say, in the next 3 years, what to do exactly to support this beauty factory as well.

And the biggest part of the CapEx, as Karl has elaborated, it's basically a space problem Rico was facing to put the machines and next part is basically to invest into ARBURG injection molding machines as well as the automation that goes with it. But of course, we want to increase operational efficiency as well before we buy new machines. The space somehow, -- is always attractive to have space restrictions, whether it's production or storage space.

Is the site in Thalheim, is it still profitable?

Say again, please?

Is the site in Thalheim, is that still profitable?

Yes, Yes, profitable. As you have seen, EUR 7.6 million EBITDA contribution for 5 months in last year.

But this is the entire, in Rico? Not in Thalheim only?

Yes. But do you know, Thalheim is the expertise center of the toolmaking. Switzerland and U.S. having a tool maintenance shop but the toolmaking himself is in Austria and Thalheim.

And last question is concerning personnel expenses. So we had these approximately 12% increase last year. So what do you expect in your current structure going into '24?

We had the biggest increases in Poland in '23. Czech Republic was still a high increase, but moderate. Austria, of course, was a very high increase. So we pretty much know the situation for the Czech Republic, which will be in line with last year. Poland is still in negotiation. Austria, as you know, collective bargaining for the chemical industry is still in negotiations. It's a concern because you saw in the EBITDA bridge, EUR 10 million cost driver, this is predominantly coming from inflation -- from region inflation because we have reduced headcount actively also in overhead areas. But this is certainly something for -- particularly our European sites, we need to monitor closely and I think, Karl, you wanted to add something on the negotiation?

Yes, in Austria, in April, it starts the chemical [ CLA ] negotiation. And if you go the inflation, let's say, April last year until end of March, it will be around 6.3 percentage. And it will be half negotiation in the chemical industry, and let's see how this goes, I expect many rounds, and maybe in worst case, a strike will happen as well. But let's face it. We need to be very, very prudent in the [indiscernible] increase in Austria.

Okay. And in your calculation, there is the mid- to high single-digit increase again for '24?

Yes. On average, yes.

And our next question comes from Sven Sauer with Kepler Cheuvreux.

Just a quick question on the 2024 guidance. The EUR 80 million in adjusted EBITDA, I was wondering if you could provide an indication if this is based on a further volume decline in 2024 or possibly a volume increase, that would be very helpful?

You remind yourself, let's say, 6 months or 9 months back, 2023, we had still the tailwind from the order book in 2022. This means the order backlog, the order book from the 2022 was very, very high in the SEA, means hoses. And so we had high prices and still a good order book. And so the first 2 quarters last year, we are more or less a result of the strong position in 2022. This means this year, we are already in the, let's say, downturn of the construction industry. Therefore, we don't have this tailwind what we had last year in the first 2 quarters. Therefore, what we see towards the end of the year, hopefully, certain, let's say, a better order intake will arrive and then we could achieve certain positive contribution. But for the days point of view, the year 2024 will be let's say, impacted from this economic downturn, which you know is nearly everywhere.

And let me add, Sven, the two divisions are impacted differently, absolutely differently because you have the highly cyclical business with the profiles and the hoses. With profiles, it is actually kind of bottoming out already. And then we have the separate Engineered Applications that are in a different cycle. Belting is doing really well, and we anticipate it to continue in '24. The form business with specialty applications, specialty niche markets, this is not driven by the overall cycle as much. And Rico, here, we see some effect from call-offs from cyclicality, but of course, leading indicators are positive with the construction of the tools. So yes, overall, we see a volume impact. Yes, the question will be when is the timing of the recovery in the market. If you look at leading indicators like the order books of the yellow goods manufacturers like Volvo, Caterpillar, published their figures. It will be the challenge for '24, probably in the second half, late '24 that we see that. But we still have the ambition to increase volumes.

Our next question comes from Markus Remis with Raiffeisen Bank International.

I have a question related to the surgical glove business and kind of the development that you've baked in fiscal '24 guidance. So we've seen an increase in the EBITDA loss to EUR 6 million. Anything you can tell us about the earnings trajectory that is [ incorporated ] in the EUR 80 million guidance and also with regards to the top line. It looks as if it has been remarkably stable. So you had EUR 20 million revenues on the first half, EUR 21 million in the second half. I have everything pretty evenly split across the quarter. So is that the run rate is EUR 40 million sales?

The run rate you can easily see by the adjustments that we've been showing, which was basically the intercompany business. I think EBITDA-wise, it's very easy calculating. It's going to be a small positive, close to zero EBITDA. It's a contract manufacturing that we do for one customer for Harps. So going forward, it's not going to be a drag on EBITDA. And I would say the top line performance, of course, depends on latex prices. It depends predominantly on cost. We do it on a cost-plus basis. And as raw material is going to swing, we'll see top line swing. But we continue to report it as a separate segment. So you're going to see that over the course of the year in great transparency. EBITDA, minor impact.

And one just -- I would like to remind you last year, 2023, is not the reference year in EBITDA for our surgical gloves because it was a split at the year, and the end of August, it was full in our P&L. And up from September until December, it was in contract manufacturing. More or less a neutral EBITDA, what Helmut explained.

I think that's what you pointed out in Q4 when you look at Q4. But of course, since it's a cost plus, it always depends on latex prices and raw material prices, energy to some degree.

Okay. So this breakeven EBITDA that we would see on a stand-alone basis in Q4, that is kind of a reflection of the true underlying [indiscernible]?

And if we alleviate it's just timing, yes, because it's 1 month removed that, of course, transition services are invoiced.

Okay. Then on the topic of the raw material pricing, maybe you can shed some light on the trends that you're currently seeing? And to which extent raw material can be an earnings tailwind [indiscernible] '24. So if you could run us your most important parts of the raw material there, please?

So raw material, what we see the last week and what is our forecast, it's a side movement. We don't expect, let's say, raw material reduced or a sharp increase. It's a sideward movement. And therefore, from that point of view, I would say, more or less a stable factor. Logistic costs, of course, what is according to the issue with the rupee. It goes via South Africa. Container costs a little bit more expensive to $5,000 a container. This comes on top, but by far not the, let's say, extensive cost of $20,000, 2 years ago. So from that point of view, supply chain is stable. Our -- let's say, split of suppliers are very stable. And so we see, from today's point of view, [ an spectacular ] year ahead of us.

But of course, we dropped to some degree, safety stocks. Priority of procurement is now again priced because if you don't have full utilization in all of the businesses, it becomes less dramatic when you have to go down into your safety stock. This is certainly also a combination together with the working capital targets that I've talked about previously later.

Okay. Very clear. And then I have to come back to one of Christian's questions on the CapEx. I mean, I get the point that there will be a very much a discretionary element to the growth CapEx that you deploy. But can you give us at least a direction for 2025? Do you expect CapEx to be above '24 then?

Yes. I mean we have a clear. Guidance out with the EUR 70 million and 40% of the EUR 70 million is going to be growth, which is predominant -- for '25 -- I am sorry, I misunderstood. '25.

'25. And the directional [indiscernible] with the current base case scenario that you have?

I mean the maintenance CapEx is not going to change dramatically. Expansion of Rico, of course, demand depends on the product market combinations also how far our customers are in the step-up in their production because that's certainly also the demand in the call-off situation, particularly in the medical device industry where we see high demand but also ramp-up curves have gotten a little longer. And for maintenance CapEx, the guidance will be similar to '23 and '24. I see no big changes, unless, of course, there's changes to the industrial base. And with growth CapEx, I mean, we continue, like in '24, the continuation in investments in Odry and then opportunistically when we see the demand in Rico.

And from the growth CapEx, we have an idea how to expand our long-length hoses in U.S. We are looking into this as we speak. And so we have not decided when exactly this comes. But this is a CapEx of around EUR 10 million and then when we do it exactly, it needs to be decided in the future.

Trend should be higher. So from all that what you just summarized, '25 CapEx should be above '24?

Yes, there's an inflationary impact. Yes, of course, nominally, in real terms, yes, we have good ideas in order to grow the business. And you know the maintenance CapEx part, it's not pure maintenance like pure replacement. It's also smaller growth projects, efficiency enhancement, digitalization. So yes, you're right.

That was the last question. I'd like to turn the call back over to Mr. Haider for closing remarks.

So thank you very much for all your interest in our 200-year Semperit. Please remember elastomer, industry, global technology and innovation and a strong balance sheet. These are our attributes for Semperit for the next 200 years. Thank you very much for listening and all the best.

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