Semperit Aktiengesellschaft Holding (SEM) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the publication of the full year 2024 Results Conference Call. I'm George, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Mr. Haider, CEO. Please go ahead.

Thank you very much, and good afternoon, ladies and gentlemen and a very warm welcome from Vienna to our full year 2024 result presentation. Thank you for joining us. And as always, we are very grateful for your time and interest in our company of Semperit. On this occasion, I am in the call with our designated new CEO, Manfred Stanek, sitting left to me; and our CFO, Helmut Sorger, who, as usual, will take you through the financial results in some minutes. Manfred, who joined us at the beginning of March, three weeks ago, will first say some introductionary words before I continue with the operational highlights. Helmut will finish with a brief market outlook both divisions and the guidance for 2025. Afterwards, we are available for your questions and answers. So let me hand over to Manfred for a short personal introduction. Please, Manfred.

Thank you very much, Karl. Ladies and gentlemen, first of all, I would like to wish you all a pleasant afternoon. I'm pleased to have this first opportunity to introduce myself. I have now been a member of the Semperit management Board for about three weeks. And in that short time, I have already gained a very positive first impression of the strength of our business model, the operational excellence at the manufacturing sites, which I have visited so far, and the commitment of all our Semperit employees. I would like to give you a brief overview of my professional background. I began my career in the mid-90s in business consulting. Over the years, I have worked in the mining industry, the metal recycling industry and the downstream aluminum industry. I spent more than a decade in these fields, primarily in the Americas specifically in the United States and in Brazil. And most recently, I served as a division CEO and Executive Board member of a company headquartered in Austria, focused on rigid plastic packaging solutions and the medical technology. I would also like to say a brief word why I decided to join Semperit. Semperit is a company with a solid balance sheet and a strong profitability as you will see today. Thanks to the strategic steps which we have taken in recent years, in particular, the focus on industrial elastomers and the comprehensive coverage of the entire value chain in liquid silicon, we are competitively positioned for the future. I am excited by the strategic challenge of building on those strong foundations to drive our growth further and return the group to revenues exceeding EUR 1 billion as soon as possible. So this was one of the key reasons why I chose to join Semperit. And now I would like to hand back to Karl for the details of the 2024 financial year. Karl?

Thank you very much, Manfred. And it's a pleasure for me that you are succeeding my role and a very welcome to Semperit. I continue at Slide 3. And as this is my last analyst call as CEO of Semperit, let me summarize some of the major milestones over the last three years. In this context, let me also thank you all for your interesting question over the years, the period and of all your support. Let's take a brief look back to the early 2022. At this time, key was focusing for the organization, notably through the divestment of Sempermed and strengthening our core confidence in industrial elastomer and in our core technologies. With the sale, Semperit is fully withdrawn from the glove business, and we are focusing 100% on implementing our strategy as a specialist for elastomer products for industrial customers and applications. In 2023, we realigned our group and formed two powerful divisions, SIA and SEA, combining the respective strengths of our business with a special focus on growth and operating leverage. With the acquisition of RICO, we added a new strategic pillar for engineered technology in niche markets. On the back of this realigned strategy, we expanded our investments at DH5 in Odry and Talheim and are now set up for strong organic growth as soon as the market really kicks in. The Semperit Group stands on a more solid foundation than ever and serves a strong platform to further strengthen our market position. Let's turn the page and the highlight to the financial result of 2024, which is perhaps best summarized in one sentence that we promised and we delivered and over delivered. Throughout the year, we consistently guided on EBITDA of EUR 80 million. And we can report now a 21.1 percentage year-on-year increase to EUR 84.9 million with a margin improvement by 2.3 percentage points to 12.5% in 2024. Further down the P&L, we managed to turn around earnings after tax from a loss of EUR 17 million around in 2023 to a positive of EUR 11.5 million in 2024. Our focus on profitable growth Strong cash flow and stringent working capital management resulted in our free cash flow generation, almost doubling to EUR 45.8 million in 2024 which gives us high flexibility for our growth investments. At the same time, we can reward our shareholders with an attractive dividend, which we propose at the same level as the previous year EUR 0.50 per share. The next slide might be familiar to you, but is a reminder how our strategic positioning has evolved over the last years. With a growth platform in place, one market recovers, providing us with operating leverage and scale effects in the future. What I would like to remember is about that we have two divisions in place, which complement each other in operational and strategic terms, one with most leadership in mind to drive volume growth separate industrial application and the other one with a cutting-edge know-how in engineered technology, separate engineered application with a particular focus on attractive niche markets. And the common basis for this in our 200 years experience in rubber components and Innovation Solution and mixing. Turning the page, you see evidence for this in the numbers, as Semperit Industrial Application managed to strengthen its share of EBITDA in preparative terms despite a lower top line, showing our effort for cost reduction and higher efficiency in distribution. Internal Semperit engineer application achieved top line growth, primarily to the full year consolidation of RICO, shifting its shares of total revenue to 57% of group sales in 2024. But SEA still faces subdued demand in some businesses and price pressure, which explains the lower EBITDA share at a year-on-year comparison. Let me now go into greater divisional details, starting with industrial application at Slide 7. Here, sales were down by 11 percentage year-on-year given low volumes and product mix. But our cost reduction effort and operational improvements resulted in an 11% increase EBITDA with margins being up by 3.6 percentage points to respectively 17.8 percentage. Among the business units, the order intake at wholesale is still at low levels. Stabilized during the year, supported by share of wallet wins. In turns, profile business continues to be impacted by the weak construction industry, but our cost efficiency efforts shows up in the results. Going forward, we hope that a new infrastructure program announced by the incoming German coalition government will help the construction industry to recover. This means the market challenges continue over the short period of time. Let's go to the next slide, here, you see the separate engineered applications were up by 9% year-on-year as revenue but EBITDA declined by 5% to the subdued demand price pressure and product mix. RICO had the first year full year contribution with sales of EUR 94.6 million and EUR 16 million in operating EBITDA, which could not quite offset the impact of projects in Belting being postponed, facing competition from Asia and a shift to lighter belts. In turn, Form had mixed results with handrails, Transport and North application, achieving better profitability against the backdrop of demand in industry and construction remaining weak. Let me finish the operational highlights by presenting some new innovative products which have not only a wide range of applications, but also support our growth pipeline. In our Form business, we developed molded heavy-duty rubber metal parts for the mining application. Remember the mining starts with picking out the stones, goes into crusher and then other mills. And it's vertical tower mills and steered mills for a fine or even ultra fine grinded processes. As example, for copper, iron ore, gold or lithium. This is one of the heaviest parts produced in compression molding in our Wimpassing parsing plant in Austria, supporting the green energy position by optimizing mining activities. We recently also developed hybrid handrails, which combine the best properties and performance of rubber and polymer technology by offering advanced rubber performance with a fully retained surface appearance. This results in a durable and shiny product, which is particularly in demand in Asia. Production has started at the end of last year and we are in the process of ramping up in 2025, this product. Our third example is that we -- is of a high quality track belts for snow vehicles which offer exceptional durability, superior traction and easy installation, tested and approved under extreme conditions in top ski resorts worldwide. Finally, as operations go hand-in-hand with usability, I would like to update you on Page 10 about the implementation of our ESG targets set for 2030 as we publish this year our first integrated report, following sustainability reports over the 7 prior years. Slide 10 summarize the main defined targets distinguished by different colors for the environment between energy, waste and emission, social between incident rates and diversity and inclusion and governance for supply chain. I'm very pleased to report that we have made good progress in all except the energy target in 2024, with some substantial improvement in waste and incidence rate over the year. Given lower production volume in 2024, we had proportionately a higher usage of our, let's say, base energy costs. Therefore, we have not achieved our energy target by 2024. With this, I have come to the end of my part and hand over to Helmut for the financials of the Semperit company.

Hi, everyone. And before we get into the nitty gritty of the balance sheet, permit me to start with a personal note. I would really thank you, Karl, for your dedicated leadership for your passion and for your spirited insights into Semperit that you've been sharing with all of us on these calls and also for your leadership of Semperit on behalf of 4,000 colleagues.

Thank you very much, Helmut. Thank you.

Now, welcome Manfred.

Thank you.

The stage is set for you. The stage is also set for the financial highlights. You're familiar with Slide 11. It started out as the CFO work program. Now it's our continued mode of operations. And I use this slide also to shed some light on what happened in 2024. Market-wise, it was not an easy year. It was rather difficult. We started out into the year in the second year of our cost reduction program. which was necessary and led to efficiency enhancements, operating leverage and also streamlining the business by taking EUR 80 million -- more than EUR 80 million out of our fixed cost base. EUR 12.4 million of those attributable to the year 2024. We not only focus on cost management, but also put some focus on free cash flow and cash generation. Actually, it's the third year in a row that we do this. And as many of you can tell, it gets harder from year-to-year resulting in EUR 45.8 million free cash flow and cash reserves of EUR 126 million. We reduced net debt to EUR 103 million, which equates to about 1.2x EBITDA at the end of 2024. Now if we do cost management programs for a prolonged time, it becomes part of our corporate DNA. And I think this has happened for Semperit. So we have it well in all of our processes. And we will certainly continue to be very vigilant about overheads. And if you want to achieve operating leverage, we need to be vigilant about overheads because cost introduces itself if you don't pay too close attention. I'm also very glad to announce that we are going to propose to the AGM, the dividend of EUR 0.50 per share to let our shareholders participate in a good liquidity situation and cash flow situation of Semperit. On the final topic of this Slide, one which is very close to my heart, I want to elaborate a little bit more. It's our digital transformation. We've started the digital transformation through several smaller projects with a quick payback that I've talked about in the recent quarters. Now we kicked off the second stage, which is the implementation stage of our One ERP project, which means we've decided in December to go with the SAP S/4 Hana public Cloud Edition and will be amongst the spearheads, the pioneers in industry, large industrial groups who are going to do so. It's a project that will be with us until 2028 when the plan is to have the last plant online with this new system. But it also means something for our EBITDA and the way we report expenses because as for public, cloud addition is a Software as a Service, so it means that development cost for this cannot be capitalized according to IAS 38, but have to be expensed in the year incurred. So we are, going forward, providing you with an operating EBITDA before project expenses and the difference are going to be expenses for our One ERP project just to ensure comparability. Over the page, we provide a summary of our main financials in comparison to the previous year, and we've included, as I've just mentioned, the operational EBITDA, EUR 1.4 million were project costs for this digitalization project in 2024, but it's going to be more in 2025. Our revenue is effectively flat on last year. We're going to talk about it a little bit more in the bridge. So we lost volumes due to the general market environment. We had a positive impact from a full year's contribution of RICO but we're very glad to report an increase in EBITDA of more than 20%. Also, we were able to move Semperit back into the earnings after tax positive into a profitable position with earnings after tax of EUR 11.5 million and Karl has already mentioned a very respectable free cash flow of EUR 45.8 million. On top of this, our EUR 6.6 million cash in from the sale of the Medical business Part 2. Turning the page, we're plotting the last 12-month industrial revenues against the operating EBITDA margin. This continues the trend from previous quarters, both in topline pressure, but also improving margins. What we also did is for your reference, we entered a dotted line, which is basically to signify the effect of our cost improvement program which I think is quite respectable if you look at it in terms of margin. With this in mind, we will continue to focus on these factors, particularly those that are under management control, which is working capital, cost and focus on our strategic growth investments. When looking at the EBITDA bridge on Slide 14, both price and product mix as well as volume effect had significant downward impact year-on-year, which was essentially offset through our cost savings and the contribution from RICO. Under the relevant columns for the cost items, we've detailed the sequence of our cost reduction program since it's been initiated with an original target of EUR 10 million in 2023, achieving savings of EUR 12.6 million in 2024 alone, adding up to EUR 18.4 million in total. As I've already outlined, EUR 1.5 million were project costs for our One ERP project to distinguish going forward between reported and operating EBITDA, which we'll have to continue to do until 2028 when finally, the last plant of Semperit will be on One ERP. On Slide 15, you will find our development of trade working capital. And I think if we talk about free cash flow, we only talk about profitability and a better cost structure but also a focus on lowering inventories being very vigilant with our trade receivables. And I think it's now the second year in a row where we have significantly reduced our trade working capital, which also makes room for what we hope for is a return in the markets where we need to purchase raw materials again in order to be able to produce. The bridge chart for year-on-year net debt development on the next slide shows the main moving parts that generated the free cash flow, which is more than covering growth projects as well as the dividend project, we also repaid debt of EUR 10 million in the last year. This important development is further substantiated on Slide 17, where we present major balance sheet items in the financial profile. As of end 2024, we have a cash position of EUR 126 million, a lower net debt-to-EBITDA ratio of 1.2x compared with 1.6x a year ago. and a higher equity ratio of 47.2%. In terms of financial liabilities, I would like to highlight the 3% year-on-year increase due to the financing of the capacity expansion of DH5 in Audrey, while at the same time, we repaid debt. In addition, as an example for our continued efforts to restructure financial debt, we also use the swap to convert variable into fixed interest rates during that period because we are going to repay a private bond mid-2025, which was, of course, carrying a fixed interest rate. Over the page, I finished the financial section of the presentation with our capital allocation policy and the priorities for the use of cash. You're familiar with our distinction between maintenance and growth CapEx with the former also including smaller growth projects to enhance our industrial base. In turn, our growth CapEx provides investments for strategic projects, such as the hydraulic hose production at Audrey in the Czech Republic and capacity expansion at our RICO site in Thalheim, Austria. In the latter, we also include digitalization projects adding up to EUR 29.5 million compared to EUR 35.1 million maintenance CapEx in 2024. In addition, we remain open for opportunistic bolt-on acquisitions, which provide a strategic fit and compelling investment proposition. This is something where we keep a rigorous screening process and pursue regional product and technology opportunity. And let me add, First and foremost, it needs to be a very attractive financially. So we're talking multiples that are dirt cheap. Finally, our commitment to shareholder returns in form of dividends. We reiterated today by proposing EUR 0.50 dividend per share for the 2024 financial year, which is at the same rate as previous year. Let me turn to the outlook for 2025 on Slide 19. Some information we've already given through our guidance in a press release earlier, the commodity-driven industrial application continues to face a cyclical downturn largely due to weak demand in the construction and yellow goods industries. Here, notably in construction and agriculture. As Karl mentioned, we hope that the new infrastructure program of the incoming German government will provide some impetus. In turn, engineered application operates in diversified markets with different dynamics and its focus on technology and industry solutions, whether mountain applications, mobility or health care helps to be more resilient and stable despite some renewed price pressure. Overall, we continue to have currently a good visibility for the first half of 2025 facing ongoing challenging market environments. For the second half of the year, we see the potential for a recovery to start in the individual regions and markets. With this in mind, we expect the operational EBITDA in the range between EUR 70 million and EUR 90 million strongly depending on the market recovery dynamics and the timing of the market recovery. CapEx should reach around EUR 60 million in 2025, split between EUR 40 million for maintenance and smaller automation projects and EUR 20 million for strategic growth projects. From today's perspective, I can also confirm our operating EBITDA target of EUR 120 million in 2026, provided we get sufficient support from the market recovery in 2025. Finally, before we finish the presentation, let me just recall our 5 investment propositions of our equity story, which comprise leading market positions, innovation, a resilient business model and I think what we've proven well in 2024, our cash generation capacity. This in all should lead to a value play with recalibrated growth for Semperit. We are now available for any questions you might have Operator?

[Operator Instructions] And the first question comes from the line of Markus Remis from ODDO BHF.

I would have a question related to the ERP spending. If you could shed some light on the expected trajectory beyond 2025, what should we expect in terms of P&L effective costs? And then, of course, there should be a payback to those charges, maybe you can also outline the benefits and to which extent do you expect that benefit then to your cost base?

Thank you, Markus. It's a very good question. At the moment, we have 23 different ERP systems, 23 systems which are installed on-premise, which have IT focus and third-party support, making sure that they work. And the payback of Software-as-a-Service is Clearly, you don't have IT infrastructure for the ERP system. It's provided as part of the service. So if we're talking about the payback, it will be a significant one that I'm not going to quantify right now. What are the cost for it? EUR 1.5 million were the cost for the initial stage term. We now entered into the Stage 2 where we basically create the global template in 2025, and we'll have the first roll-ins, the first companies moving to the new system this year. We will have parallel infrastructure until 2028, but we will phase out the old systems and bring more and more companies online with the new system. Expected expenses for 2025 are EUR 5 million. And I think this is a run rate we can expect depending on how many roll-ins we do each year also for the years until 2028. What I can say is we are eager to learn, and we are fast learners. So we have a third-party consultant who is not on this call, I hope. So what we are certainly going to do is look over our consultant's shoulders and learn and internalize knowledge. And you will hear this from a lot of companies. We are now reporting operating EBITDA and somehow this is -- when the CFO lacks fantasy, then we start order company like performance, then we start adjusting EBITDA, but I think this is something that we need to be prepared for with a lot of companies who will move on SAP public cloud because it's just expenses that used to intangible asset, used to be capitalized. Now it's a different way of looking. But it's still for us a cash out, and we look at it as a project with a payback. I hope that answers your question.

Yes. That is very comprehensive. So including 2028, roughly EUR 5 million with a quick payback.

Every year.

Yes. Okay. And then a question which arises probably in many calls these days, U.S. tariffs are quite a dominant topic. Can you help us with the share of U.S. imports or from your perspective, exports into the U.S. that are derived from non-U.S. sites. So what's kind of the exposure?

Our U.S. sales are about 17% group sales. We have local production there for Fintech, which is a RICO company with high-end liquid silicon parts that mainly go into the medical industry. high-margin products, good products locally manufactured so not affected by any tariffs. We have, of course, belts going into the U.S., heavy belts for the mining industry. To our knowledge, not impacted by any tariffs. We have handrills going into the U.S., mainly from Europe not impacted by any of the elevated tax our main competitor is in Canada, impacted the taxes in tariffs. We have products for the railway industry going into the U.S., not impacted by taxes, but we envision local production anyway because public projects in the U.S. have to be made in America. So we're certainly planning to do that as soon as we are awarded contracts. Markus, you know we have a manufacturing site there, so we will certainly meet these products locally. And we are not in the gloves business anymore, which would have been heavily impacted by tariffs. Anything on this, Karl? Yes. So it's a balanced view, as we've said with the Q3 quarter. So it's -- at that time, I think we said either way. We can live with it. Now uncertainty, of course, is in the system, and we will see how the tariff policies of the Trump administration are going to stabilize.

Okay. And then the question related to the material cost development. I mean, you can see also looking at the quarterly development that kind of the material expense ratio has come down nicely, especially then also in the fourth quarter with some other growth and material cost down 8% year-on-year. Can you maybe help us understand in which parts of the business or segments that was the biggest benefit?

Karl?

I would say that is not, let's say, one particular. It's across the business in SBR, in EPDM, all this came down. And therefore, there's not one really one particular that you say it is this raw material for this application on this product.

We had a fixed price contract on silicone, some discount due to volumes that impact, but that's not big things. I thinkwith rubber, it's across the board and silicon prices were pretty stable, I would say. They were not downward and not a little bit downward.

And another question at this stage related to your corporate segment. Is there any kind of cost that you can guide us for now going onwards in the new kind of corporate setup? So was like the sustainable EBITDA I mean it has come down over the quarters actually now Q4 was a rather minor amount is like EUR 10 million, EUR 12 million. Would be reasonable?

I mean we are at about EUR 12 million right now, so EUR 1 million less is still possible. But it will be challenging since after EUR 18.4 million in cost savings over the last 1.5 years, we've already cut deep into it, and we don't have such a huge corporate structure, to be honest. So we are essentially quite lean. We expect savings from digitalization going forward, but this will take a little bit of time. But our commitment still is, again, as lean as possible. So EUR 10 million or below, but this is something I cannot guide at the moment. So EUR 11 is possible.

EUR 11 million. Okay. I'll take that. And another kind of bookkeeping question, which I think given the history of the recent years, which is a bit tough to assess what's like the corporate tax rate for our models that we can pencil in?

You're better off using 25% because we go from 0% to 40% there and this is the impact of the deferred taxes because the countries where we are profitable. I mean, the main manufacturing side, Czech Republic, Poland, China, we are paying taxes, but we have tax loss carryforwards in the Austrian tax book. RICO is part of the Austrian tax group as well. And we have EUR 140 million in non-capitalized -- non-activated tax loss carryforwards. So this will be somehow affected to bear in mind Austrian tax group and the effective corporate tax rate.

The next question comes from the line of Marc-René Tonn of Warburg Research.

This would be on the revenue line you expected this year. I think you alluded already on, let's say, the difficult market and shrinking market development and presumably a better second half. On the other hand, I think we could already see that in Q4, the top line was up first time on a 12-month rolling basis for the first quarter of '23. So if you could confirm that you expect the top line being, let's say, more below the previous year's level in the first half and then catching up in the second? Or should we expect the first half year already on last year's level? That would be my first question.

Yes. Top line in the first quarter won't be too nice. I mean we've already guided that first quarter results will be probably 50% of -- lower than last year's. That's due to delays in certain projects, shifts in demand and ongoing difficult market conditions. So at the moment, we don't see the big volume increases. We have pretty good visibility for the first half of the year, order books doing somewhat an uptick, but it's still too early to tell that we're going to have the big impact on revenue growth. For the second half, as we said in the outlook, we see potentials there. So we expect it to be overall higher than last year's. But focus for us is the profitability of the product. We look at it from a cash flow return, EBITDA return perspective. And of course, mix is a key element to it there in the commodity business, Performance commodity business, it's somehow easier to forecast in the temporary engineered applications, it's tougher because we're talking about high-end project applications with relatively high margins. The focus is on EBITDA, whatever it takes revenue wise. But EUR 700 million plus should be the case.

Second question would be on the, say, return of the company to more than EUR 1 billion in revenues from where we are right now, let's say, around EUR 700 million. Could you give us some expectations from your side and how much of that you would expect from, let's say, some kind of organic growth with new products and new customers and cyclical recovery? And how much M&A and I think you already alluded on, let's say, the valuation you would like to see there in bolt-on acquisitions being there cheaper, could you could give us some indication regarding the size of companies -- sectors you're looking at and perhaps also regions which would be in focus in this regard?

I would really focus on organic growth right now because the dirt-cheap targets are not so easy to find until you get the lucky punch with a succession like we had with RICO or its restructuring cases. And we don't shy away from restructuring cases because we certainly have the industrial expertise the expertise in back office and finance customer service to onboard businesses, which are probably a little bit struggling at the moment, yes. But you're well aware of our valuation in the stock market right now. An acquisition has to be value accretive. So you can just calculate very easily what multiple they have to go by. Focus is on organic growth. So if we talk about EUR 120 million EBITDA, we want to attain the number of revenue euros should be around EUR 900 million, probably a little bit less with higher profitable business. And if you say half of it is coming from a market recovery and the other half is coming from new PMCs that Karl can explain much better than I can. I think this is a sound case. So for '27, '28 , the EUR 1 billion is within reach. And I hear Manfred, he is very committed to get there as early as possible.

Maybe if -- Karl Haider. I add a couple of information PMCs. I introduced into 3 PMCs, Hybrid handrail, as example, It's a very interesting good product with two combinations of properties and the Asian countries love this product means nice expectation for this in new, let's say, mining field. Is it further filtration membranes, which are necessary to the higher regulations in ESG? Or is it in EBITDA described before in the mills, new interesting applications or track belt or even we have, let's say, small chips sensors, which can be vulcanized into rubber and gives the property information about the product, I would say the rubber tech. We are working on all these fields and there are really nice prospect to get more revenue out of that. But I would like to add on Helmut's thing. I would say we are ready for harvesting on -- two example, is a DH5 in order, it's ready to be used when the demand of the market is increasing while RICO is ready to be used, the buildings, what both with RICO to fill with machines for new health care application or mobility. From that point of view, many things are prepared that this journey to EUR 1 billion can be done as Helmut said as soon as possible.

And last question would be on the working capital ratio, with I think is very nice between 15% and 16%, with improved much factoring and change compared to if I remember right, what it was at the end of the third quarter. If you could you give us some indication what you see as kind of a, let's say, sustainable working capital ratio. Should we think about, let's say, this 15% to 16% with about, let's say, EUR 20 million in terms of -- let's say, not even EUR 20 million, but EUR 15 million to EUR 20 million in factoring as a reasonable assumption also for the years ahead?

Yes. We were able to lower factoring actually in -- towards the end of the year. So we had EUR 16.8 million in receivables sold at the end of 2024, EUR 15.2 million, I think for our industry is about as good as it gets. We hope this level looks extremely challenging. And you will appreciate when markets return, knocking on wood if they return very late in the year 2025, we will have not a lot of revenue impact, but a lot of working capital impact. So what we are certainly trying to do throughout 2025, make and keep room for growth, meaning raw materials, higher inventories. Going forward, our target was to be below 20%. I think staying below 17%, 18% is what we can realistically aspire for without using excessive amounts of factory. We still have potential there.

The next question comes from the line of Christian Obst from Baader Bank.

First, I have a question concerning CapEx, you mentioned that strategic growth projects will account for approximately EUR 20 million this year. So in Odry and for RICO, you have enough capacity assigned for demand catching up, especially when nothing is catching up so far. So what are you spending the EUR 20 million CapEx for?

Yes. One element is certainly the expansion in RICO. We have rented site in Florida, we were able to sign the option. It's basically rented haul, two parts. We have one part rented and midyear 2024, we signed the option to also rent the second part of it in order to expand in the U.S. The name of the company there is Simtech, highly specialized in the medical device industry, medical components, high-end, very complicated silicon parts. And that interest -- that industry is really taking off. We're talking about components. I hope we can mention it's for insulin pumps, devices that are in high demand. We're producing to several manufacturers. We see content, of course, we need space to put the machinery in there. The thing is some of the projects are delayed because the parts are extremely hard to manufacture and also our customers have hard time getting their parts in a row. So it's not like one business there, but we get up when the production and really get up to speed there. So this is part of the strategic growth investments and automation projects are the other part.

And one example, we have offered for a big railway projects in U.S., rubber parts on the tracks. And is materialized, we need to install some equipment in U.S., but it's depending if we are awarded the two projects.

Yes. injection molding machinery that we'll have to get on the ground to be -- have been made in America standpoint.

Depending on the contract to come or not?

Yes, absolutely. We are not going to invest to hope.

Okay. Then just for a clarification, other financial liabilities increased from approximately EUR 9 million to EUR 44 million. Can you remind me, is this for the midterm repayment? Or what is this increase about?

Yes. The short-term liabilities are the private bind, [indiscernible], that moved from long term to short term. And we [indiscernible].

Yes. Would you payback midyear?

Midyear, yes, sir.

Okay. And then last one is on -- I was a little bit surprised because the return on capital employed is 30% of your long-term LTI. But it's not -- I do not find it in the presentation or even in your report. Can you remind us of the figures? So how much of capital employed? Or is it -- how much does it move from '23 to '24? And what is your target there?

The return on capital employed at the moment is at 3.8%. It's a figure that we've probably forgotten to publish. It's in the remuneration report, I'm sorry. So we can send it to you. The target is clearly to be as quickly as possible above the cost of capital. And our long-term target here is 12%.

Okay. Sorry, again. I won't be surprised that it isn't either in the presentation or in the report I have seen so far.

Yes. It's basically the capital employed -- return on capital employed is in the long term, I'm with you a very important figure. But our focus, I hope we made that point is clearly on cash generation, increasing the cash flow, free cash flow, reducing working capital, which reduces capital employed as well and then basically be very, very vigilant where we invest. So this all helps towards the ROCE, and we will certainly go back to reporting the ROCE on a regular basis.

As a problem with the analysis is that he always ask the questions you, in some cases, you do not like that much. And of course, it was very impressive when you see that inventories went down by approximately 23% with sales going only down by 6% for -- on a reported basis. This is what I'm looking at. But you mentioned, and if I got you right, there's a question from Mr. Tom before that this is some kind of a very low point. And if really markets start to improve demand, start to improve which you can't really even see that much, then we have to calculate with an increase in working capital, of course.

Yes. We will have a working...

But you can finance that without any problem, of course.

[Operator Instructions] I would now like to turn the conference back over to Mr. Haider for any closing remarks.

Thank you very much for listening and asking the right questions and for all the interest in the last years of the company, Semperit, and I would like to hand over my stick to Manfred. Yes.

Okay. Thank you, Karl. Well, this is my first call and the next one, I will do without you but thank you very much for your dedication and also thank you very much for this smooth hand over which I think was a good sign also to all the employees at Semperit, how a handover from one CEO to another should be done. Thank you very much.

And I'm great our foundation is built where Manfred can, let's say, create the 7th, 8th and 8th floor of the big houses. Thank you very much and all the best.

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