Semperit Aktiengesellschaft Holding (SEM) Earnings Call Transcript & Summary

Well, good afternoon, ladies and gentlemen. A very warm welcome from Vienna to our Results Presentation for the First Quarter of 2025. As most of you know, I joined Semperit in March. I joined the Executive Board in March and took over as the CEO in April of this year. And I'm encouraged by the resilience, by the spirit and by the passion of our teams, as well as by the resilience of our business, even more so that we are currently facing uncharted territory and difficult times. With me in this call is our CFO, Helmut Sorger, who will present the details of our results in a minute. But let me first start with a brief overview. As outlined in our ad hoc announcement in early April, we faced top line pressure due to low global order activity and ongoing delays of major projects from large customers. This was largely due to higher volatility and uncertainty in anticipation of a new U.S. tariff policy, resulting in lower customer demand. You see that we had a 13.8% decline in sales, which translated into EBITDA being down by 51.6% year-on-year to EUR 11.1 million and a margin of 7.3% compared with 13% over the same period last year. This proportionate decline in EBITDA reflects also our high operating leverage. On the contrary, when demand rises, it will have a strong positive effect. Further down the P&L, earnings after tax turned negative to minus EUR 7.2 million. In turn, we are very proud to continue with a very strong cash flow generation. Free cash flow generation increased to EUR 8.7 million, which was essentially due to lower CapEx spending. This reflects our cautious approach to both operational expenditure and capital expenditure in the current situation. As a result, we are confirming our operational EBITDA guidance for the full year of 2025 in the range of EUR 65 million to EUR 85 million. Turning the page. We present the shift in revenue and EBITDA year-on-year for our 2 main divisions, Semperit Industrial Applications and Semperit Engineered Applications, showing here graphically the impact of some of the latest economic trends. While we perceive the postponing of major projects as temporary -- as a temporary effect, mainly related to our Belting business, the current uncertainty in short-term order behavior makes it difficult to forecast when we could come back to a more balanced share in revenue and earnings. On the following slide, we are starting with the operational update on Semperit Industrial Applications, where we are still facing a challenging market. Nevertheless, the order intake and the order book improved clearly at the end of March and also in April compared with the weak initial months, January and February and also compared with the previous year's level. Given low volumes and the product mix in the first quarter, sales were down by 4.7% and EBITDA declining by 17.4% year-on-year, with margins lower by 2.6 percentage points only, or 17.2% on the back of ongoing cost reduction efforts and better capacity utilization. In terms of the business units, share of wallet gains at hoses helped to offset negative effects only partially, but again, we are encouraged by new order momentum in March. In turn, profiles continues to suffer from the weak construction industry, and we have to continue with our ongoing cost efficiency measures. On the next slide, Semperit Engineered Applications shows a steeper decline in sales, down by 19.7% year-on-year, which is largely due to subdued demand, notably in Belting. This resulted in a decline in EBITDA by 74.5% compared with the same period of last year as major project delays impacted earnings and margins. As to the business units, Form managed a stable development, with strong mountain applications compensating for weaker demand in industry and construction, and we are seeing a strong order intake and a strong order book also compared to the previous year. On the other side, and as briefly mentioned before, Belting faced project delays, market cyclicity, and Asian competition, which impacted its results strongly. In addition, we saw a positive pull-forward effect also at the end of last year, which has a positive impact on December, but a negative one on January. As far as the postponement of project is concerned, we remain confident that we will be able to secure these once our customers have a greater planning certainty again. And finally, Rico had also to make up for delays in tooling orders and was, therefore, slightly behind in its Q1 2024 results. With this, I would like to hand over to Helmut, who will take us through the financials.

Thank you, Manfred. First of all, we are very glad to have you on board. A lot to do for Semperit, great company, but great company needs great leadership, too. On this personal note, a very warm welcome from me as well. Yes, the CFO typically carries news in such a presentation. This time, Manfred mentioned it already with an ad hoc message. So, you were informed about the results already. We tried to do this based on our forecasts in the sense of utmost transparency. But now into the financial highlights, you are familiar with the building blocks of our financial framework. Difficult times, as we've seen in the first quarter that were coined by the shift in project delays require measures where we say we focus on these levers that we actually have in our hands. One of them being cost focus. We continue our efficiency programs, our overhead cost management and will be a slimmer company, steer all these measures. The organization is familiar with it. We all know it's difficult, but difficult times take decisive measures. We continue with our working capital management, and we see the payoff already in Q1. We have a very strong balance sheet with cash reserves of EUR 128 million and net debt-EBITDA ratio of 1.4x, which is still excellent figures for an industrial company in this day and age. I would like to draw your attention on our multi-year project, the oneERP project. It's a business transformation project involving the SAP S/4HANA Public Cloud that will move the entire group out. And for that reason, we will show you an operating EBITDA clean of these project expenses because we cannot capitalize all the development cost for this software-as-a-service. And last but not least, we have -- this is not for Q1, but actually for Q2 already. We've paid out a dividend of EUR 0.50 a share April 30, 2025. If we turn the page, I'd like to summarize very briefly our P&L and other key financial indicators. Given the delay in major projects of our main customers and weak market development, also some effects, we had a very good December, but a very slow January, impacting the year, turn of the year. Revenues were down 13.8%, EBITDA significantly by 51.6%. I think this is -- I don't know the right term for all the economists around you, a contrapositive proof. We try to do the track record of increases in earnings, although volumes declined. If there is a threshold, certain threshold in our high-margin business that's not met, of course, we see the disproportionate effect in EBITDA. You'll recall from previous quarters that we've included operational EBITDA, as I've mentioned before, the cost for our oneERP project in the first quarter 2024 were EUR 200,000 in the first quarter of 2025. These were EUR 800,000. For the year, we still expect cost of EUR 5 million that cannot be capitalized. And if we look at EBIT and earnings after tax, this is a mere effect of the EBITDA we are missing, the margins we are missing. So unfortunately, in the bottom line, we see a loss of EUR 7.2 million for the quarter. But Manfred mentioned it before, we are very proud that we could actually increase our free cash flow, which is one of our key performance indicators. Turning the page and plotting the last 12 months industrial revenues against the operating EBITDA margin, where the trend from previous quarters continues in terms of top line pressure. However, on the back of the adverse developments we have described before, operating EBITDA margins were down from 14.8% in the fourth quarter 2024 to 13.2% in the first quarter of '25. We consider this to be a one-off exception due to the situation in the project-related business, first and foremost, the Belting business. Clearly, when volume returns, it will have a highly positive effect on margins that would go straight down to EBITDA and also the bottom line. As I've just outlined for CapEx, we'll continue to focus on those factors which are under our control, notably capacity adjustments, cost control and growth investments. When looking at the year-on-year EBITDA bridge, Slide 10, a steep decline in volumes could not be offset by price/mix and further cost measures in terms of personnel and consulting expenses as well as change in provisions for warranties. Cost of materials, services and energy went slightly up year-on-year. However, EUR 1.6 million of this predominantly infrastructure costs were passed on to the buyer of the medical business as part of our joint use agreement for the premises. The seasonal inventory build-up was the major offsetting factor in the first quarter of 2025 as we introduced operating EBITDA to account for ongoing project expenses for oneERP last quarter, the difference to reported EBITDA is EUR 800,000, as I've mentioned before. Over the page, we present the constituent parts of our working capital management, with a significant improvement compared to the situation a year ago. In total, trade working capital as a percentage of last 12-month revenues was down at 15.8% after 18.7% at the end of March last year. Compared to the end of the year, we see a slight increase, which is mainly due to the seasonal inventory build-up, the extension of our payment terms with suppliers and other structural measures that we've taken are clearly reflected in the development of trade payables. The bridge chart for year-on-year net financial debt development on Page 12 shows that the improvement in free cash flow generation to EUR 8.7 million, combined with a substantial reduction in CapEx, helped to reduce net financial debt in absolute terms by another EUR 3 million. Given the lower EBITDA during the first 3 months of '25, net debt-to-EBITDA was up slightly at 1.4x, still an excellent level compared with 1.2x at the end of 2024. From my perspective as the CFO of the company, the important message here is that even when it is getting more difficult market-wise, we can focus on the things that are under our control and managing these to generate higher free cash flows. Finally, looking at the next page, cash and cash equivalents in the balance sheet are up 2% since year-end '24. Financial liabilities are stable, and we're planning to repay a EUR 31 million of our Schuldschein loan, which is due in July from our funds. Finally, I finish my presentation with the priorities of capital allocation and usage of cash, which you are familiar by now in conceptual terms without going into detail for each component, but the important thing to highlight for this quarter is that we managed to reduce maintenance and growth CapEx to EUR 12.4 million. Given the overall market situation, we feel it is prudent to pull this lever, which is under our control. Having said that, I'm still pleased with our shareholder contribution, shareholder return, EUR 0.50 of dividend per share was paid out April 30, and this is a signal to our institutional and private investors about our confidence in the business model, the future growth platform. And now the outlook. Manfred, we're very eager to see where we're headed.

Thank you, Helmut. And let me finish our presentation with the outlook for 2025. The commodity-driven industrial applications business continues to face cyclical headwinds, largely due to weak demand in the construction and the yellow goods industries and here, notably in construction and agriculture. But with the new German government in place now, we hope that -- hope and expect that the new infrastructure program will provide a strong momentum and some of our customers are increasingly providing positive feedback. In Engineered Applications, this division was mainly affected by a lower global order activity and project delays by major customers. But to emphasize again, we are confident to secure these orders as soon as our customers have more certainty in their planning. Overall, we continue to face a challenging market environment as it's aggravated by the uncertainty around U.S. tariffs. The latest news flow is at least positive, for example, with regards to the trade truce between the U.S. and China. And again, after a weak start, in particular, in January and February, the order situation improved much in March and April, and both order book and order intake are currently exceeding the comparable figures for the previous year. So for the second half of 2025, we expect a recovery, but again, due to ongoing trade negotiations, the outlook remains still uncertain. With this in mind, we are confirming the operating EBITDA to be in range of EUR 65 million to EUR 85 million in 2025. And in this context, project expenses for our oneERP project are estimated at around EUR 5 million in 2025, as a result of which we now distinguish between reported and operating EBITDA. And please note that these expenses are P&L effective. At the same time, we are maintaining our OpEx and CapEx guidance and remain 100% committed to growth. Nevertheless, we are able to adapt our investments to the market environment. Last but not least, 5 reasons to invest in Semperit, and these I not only present to you as the CEO, but also as a shareholder. Number one, we are having a leading global market position in most of our businesses in elastomer applications with a very strong industrial base and industrial footprint. We have a relentless focus on innovation and technology. We are a company that has been around for 200 years, and this proves that we always are able to reinvent ourselves with a strong focus on innovation. We have a resilient business model driven by operating leverage and cost leadership. Semperit has a very strong cost efficiency DNA, and we are continuing to take cost out of the system wherever possible. We have a very strong balance sheet. And just as last year, also this year, we are generating cash and have a very strong cash generation capacity. And last but not least, we have a good and calibrated global platform, which we will build upon for our future growth. With this, we're coming to the end and to a Q&A.

[Operator Instructions] Our first question comes from Markus Remis from ODDO.

I'd like to start with a question related to your remarks on the outlook. If you could shed a bit more light on which regions and which products you expect to improve particularly? And then also the comments about order book above the prior year. Is that to be understood on a cumulated basis across the group? Or is this to be understood for a specific segment only?

I think we'll split that. Just the pointed question, I mean, Markus, we've already said we see -- we don't see green sprouts, but we expect green sprouts, but clearly, our customers sees green sprouts if you follow the news. We definitely see an uptick year-on-year in order activity in our commodity business. We see activity also in our solutions business, but this is overshadowed by delays of key decision-makers. We mentioned the project business, which is liquid silicone and which is the Belting business. We need to get a grasp on how long these delays take. That's been going on for a year now. And now certainly, the situation with the unclear outlook for U.S. tariffs and how this is going to impact sourcing decisions from our customers is contributing to further delays. Austria is in the third year of a recession, as we've learned from our Minister of Finance day before yesterday. Other regions of the world are not doing so badly because Eastern Europe, I mean, some development is very positive there. And just to remind you, since you asked for areas of business that we'll see it first, we have early cyclical and we have late cyclical businesses. The classical example for early cyclical businesses is certainly our hydraulic hose business where we say, if our customers expect from infrastructure investments from construction economy that there is a demand also for heavy equipment, of course, OEMs will start placing orders. It's feeble right now, but the activity is above last year that I treat as a good sign. But Manfred, you can add certainly from, say, CMO, to that.

Yes. Absolutely. So first of all [indiscernible].

Excuse me, this is the operator. We are not receiving any audio from your line.

Sorry, my apologies. Yes. So first of all, to your question, when we're looking at the order book, we're looking at a cumulative base. And when we look at our 2 divisions, SIA and SEA, at SIA, we are looking -- so industrial applications, we are looking at an order book, which is currently well above the same period of last year. And in SEA, the picture is a little bit mixed. In some businesses, we see a very strong order book also. And mainly in the Belting business, we see an order book, which is much weaker than in the same period of last year. So, I would say for the majority of our businesses, we see a stronger order intake and a stronger order book in comparison to last year. And the one negative -- the one bigger negative exception is our Belting business. Yes. And in our belting business, we see, in particular, in North America, customers, who I would say are sitting on their orders now, sitting and waiting and seeing what the U.S. tariffs will bring.

But it's customers -- key customers for us that we won from a competitor. So, we still expect a long business relationship with them because, I mean, it's not just that we provide the belts, but we provide a solution to them. And so I think it's just reasonable to understand from -- as we do right now, that it's more delays than lost business.

Okay. Can I follow up on SIA specifically? So, you're saying this one -- this segment is doing much better in terms of order intake. And now I read here in the presentation, hose is slightly better. There is no kind of outright comment on the profiles. Does it mean that profiles order intake is also up despite the weakness in the construction company because otherwise, it would not add up to SIA as overall being clearly above prior year.

Markus, I'm sorry to interrupt, but a very quick answer to it. The order book with profiles is very, very short term. This is a business with lead times of 2 weeks, 3 weeks, 4 weeks. Therefore, it's so important. We manufacture at sites in Germany and the U.S. The German construction economy, we don't see any impact from that side, yes. So it's still a little bit, but this is just with a focus on the word little on the upside, but there is no impact at all from infrastructure projects at all, and we wouldn't expect to see that. What's positive since we have local production and profiles in the U.S., we clearly have a positive impact for this business from the tariffs because our customers switch to U.S. production. I hope that answers your question, Markus.

Yes. Understood. And just on kind of the expected top line momentum over the quarters. I mean, is it fair to assume that kind of in absolute levels, Q1 was rather the trough already and that kind of -- and again, talking about absolute levels, there should be some slightly momentum building up then as of Q3, Q4? Or is there a chance that Q2 is weaker in absolute terms because of...

Yes, to answer your question, yes, we are definitely seeing a momentum for Q3 and Q4, still with some conditions, but we are seeing a momentum, yes.

Right. And then on Belting, if I can follow up here on the comments about postponement. You were giving kind of a buzzword because this kind of storyline about postponements carries on now for some quarters. I mean, is this -- how should I say, might this carry on for even longer into 2026? And then you were mentioning also capacity adjustments. Is that to a larger extent or just kind of ongoing business decisions to take out lines or certain shifts?

No. What I would say is that we still see strong fundamentals in the mining business, which is the driver behind our Belting business, yes. So the strong fundamentals in the mining business have not changed. We're just seeing right now that many mines, in particular, in North America are not placing any orders because many of their suppliers come from Europe, some of their suppliers come from China and some of their suppliers are local. And they don't -- as long as they have stocks, they don't want to place any orders until the whole tariff discussion has been sorted out. But again, I would say the fundamentals behind our Belting business, which is the mining business is still strong, as you see also in commodity prices.

And with regards to your question with the postponements, SEA is impacted by those, but it's switching businesses. We brought up the postponements first in the beginning of '24, where our LSR business, the toolmaking was predominantly affected by it. So therefore, you noticed the message has been going on for a year now. But the first half of '24, the Belting business was doing still fine. But now it's basically another business added to these decisions where it's high-value goods that we're talking about. And of course, if mines can squeeze a penny, they certainly do so.

Okay. And the capacity adjustments there to...

Capacity adjustments with uncertainty, the damage is done because we now have no other choice, but take out weekend shifts, reduce production adjusted in the next month, which is basically May and June to demand. But then if the pent-up demand comes, we are operating again at capacity limitations. So, '25 will probably be a situation where we run out a month if the delayed business then materializes in Q3 and Q4.

Okay. Okay. A final question on your capital allocation policy. So if I do the math and take, for instance, the lower end of your guidance, you would end the year most likely with a net loss. Can I just get your considerations in such a case about dividend distributions because we know the general 50% payout ratio? But for all the known reasons, it has varied greatly in recent years. So is a dividend omission in case of a net loss a viable scenario? And adding to that, on the M&A pipeline, are there any kind of targets emerging in the wake of the current turmoil?

To answer your question on the profit after tax, the bottom line for the year, I mean, the year is not over. I mean, we have a quarter now. And we have a clear dividend policy, which states 50% after the -- of the group profit after tax shall be distributed to shareholders. On your question on the M&A pipeline, we are clearly looking at M&A targets because difficult economic circumstances, even economic crisis do wonders to multiples. And I think there might be some attractive situations that we can take opportunistically, but which also would fit Semperit very well. Manfred, you want to add more to it probably?

No, you have said it, yes. I think at this specific point in time, nothing jumped out coming from the turmoil, as you mentioned it. But I think I absolutely agree with Helmut, there will be opportunities. And when there are opportunities, we will act on them.

The next question comes from Christian Obst from Baader Bank.

Just one question. A little bit for understanding. So you adjusted capacity, obviously, in your hoses business in Odry and also in the Rico area. So, how much have you adjusted the business and with what kind of measures? Do you still have all the people in the workforce in place? And how fast can you ramp-up capacities again? So, what is the switch factor more or less? So, are you now down to, I don't know, 60%, and you can move it up to 80% within a week? Or how can we -- how can you describe that current situation?

For Odry, for the hose business, this is production -- and I think we shared that with you end of '23, where we took out shifts. So, we're, at the moment, from a utilization standpoint at around 70% utilization. What it takes at the moment, of course, adding shifts, adding people back that we had to -- that we were forced to release due to market demand. And of course, timing the market recovery now is of utmost importance because we went from a 21-sift operation to a 15-shift operation. And clearly, the path to go back up needs hiring people so that we're staffed when orders from customers come at short notice. And in a commodity business, it's a bullwhip effect. So it goes down quickly, but it comes back quickly as well. So, this will be of utmost importance. And I think Manfred, do you want to add to?

Yes, I can talk about Rico. I think in Rico, we have an operating -- production operating model, which allows us to be very flexible. Remember, we, for example, have ghost shifts at Rico, where we run the machines during certain shifts without any personnel. And measures like that help us to balance shifts in supply and demand very well, I think -- I think I know. And I think the biggest impact we see in Belting because in Belting, we are, as Helmut has already mentioned, we are actively taking out shifts. And here, it will be a challenge to build up those shifts again quickly when the demand comes back. But we are aware of that, and we are adjusting our action plans around that.

So in the end, you are a little bit limited when it comes to growth going forward, at least, right?

No, no. In hose business, we have our DH5 that we can ramp up, and we still have capacity available. And we don't have only plants in Europe. We have plants in Thailand, which is very well booked. We have a Chinese plant. So, I'm not so worried about that. Let the market come first. Let the order activity pick up, and then we can handle the rest. We are used to it, Christian, because it's a highly cyclical business. So it's not new for us to adjust capacities down and back up. It's more cumbersome, of course, in the Belting business because we are talking heavy industrial operation where the press cycles are the limiting factors.

And what I would add to it, especially when it comes to hoses and when it comes to Odry, the Czech Republic has a difficult labor market, and we have been very successful in hiring labor from the Philippines. In the Czech Republic, the Philippines are a partner country of the Czech Republic. And we are using actions like this to balance shifts in demand. And I'm convinced that we are doing this very well, and there will be no labor constraint when the demand comes back.

Interesting, especially also having seen this swamp in the top line and despite the fact you are delivering quite sound EBITDA. So it was impressive. And last one on Rico. So, given the fact that you bought Rico at a certain price, since that time, the order intake, top line profitability declined. Do you see any kind, or any kind of risk of value adjustment for Rico this year?

Christian, we are looking at this with regards to the business plan. We update forecasts on a quarterly basis. We update business plans when we see triggering events. And certainly, a negative deviation or deviation from a plan constitutes a triggering event. So what we are going to do is basically do an adjusted planning. The question for Rico is truly the long-term potential. Has that changed? Has the long-term market growth changed? We're addressing these factors. You know we have not only bought the company, but we also have bought a company with the option to expand with a new production house in Thalheim and the expansion in Miami. It's still a very, very attractive market, but these timing delays, I mean, we need to have full understanding on are projects delayed or are we losing projects. And we are, at the moment, certain, we are convinced from the intel we have, it's timing delays. So, I wouldn't expect any impact on pricing for that reason -- sorry, pricing, I said, valuation for that reason. What we do, however, in the purchase price allocation, you saw we didn't only activate goodwill, but also customer base and also technology. We're certainly investigating the customer base through amortization, but also regular valuations. We have a valuation model for that and also the technology, which is highly dependent on the utilization of the tool shop. But at the moment, we don't see it, but we do the calculations now in the next couple of weeks.

We have a follow-up question from Markus Remis from ODDO.

Yes. A question relating to the working capital development. And I know there's a lot of uncertainty on the top line development. But how should we think about working capital trends in your base case scenario, meaning a recovery in the second year? Is it then fair to assume that we probably have seen the trough now as you speak as you will probably then have to build up some inventories and business increases, although the other components will go up at the end of the year so that we might end the cash drain?

Yes. Because if a recovery in Q3, Q4 happens, you don't see a lot of impact on your LTM revenues, but we will see an immediate impact in raw materials, goods in production, WIP, and also accounts receivable that go up there. So if the recovery comes, we anticipate a working capital swing of up to EUR 20 million. But therefore, Markus, we try to create the room now in order to absorb that and still not be a drain on cash.

Okay. Very clear. And this working capital swing, this is up to EUR 20 million. Is that already including potential increase in factoring? Or would this be kind of the organic build-up, if I may say so?

Yes. With factoring, we have some room to go up, but there's a certain point where I say, okay, that's a threshold for me. I don't want to go above that threshold because it limits the flexibility that we have. And so it's kind of a balanced state right now with regard to factoring. We are quite happy with the program. We can add quite a few countries. We just added recently the German companies to the factoring program, very cheap source of financing. But the focus, and this is also the success of the working capital project we did group-wide last year is the focus is on structural measures.

Okay. So is it further up compared to the EUR 17 million at year-end?

Yes. We increased it in Q1, yes. We went up EUR 10 million in factoring.

EUR 10 million. Okay. And maybe one modeling question helping us to reconcile also the guidance. What's kind of the corporate cost that we should expect like this EUR 4 million in the first quarter? Is that a reasonable run rate for the remainder of the year?

It's below that, yes. It's below that.

Below that. Okay.

So, EUR 10 million is probably not wrong if you go with that estimate.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Manfred Stanek for any closing remarks.

Okay. Ladies and gentlemen, thank you for joining us for this earnings call. Looking forward to further discussions, and everyone, have a nice afternoon. Thank you very much.