Ladies and gentlemen, welcome to the presentation of Datwyler's half-year results, 2023 conference call and live webcast. I'm Sasha, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for question at any time by pressing star one on your telephone. Webcast viewers may submit their questions or comments in writing via the relative fields.
For operator assistance, please press star zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Mr. Dirk Lambrecht, CEO, and Mr. Walter Scherz, CFO. Please go ahead, gentlemen.
Yeah. Hello, everybody, and welcome to our half year result presentation. My name is Dirk Lambrecht, and I'm here together with Walter Scherz, our CFO, and Guido Unternahrer, our Head of Investor Relations. I'm very pleased that you decided to attend our call despite the vacation season. Can you go to the next slide?
The agenda starts, as usual, with a review and outlook presented by myself, as well as a presentation of the financial figures by our Chief Financial Officer, Walter Scherz. Let's start by giving you an overview of the key points regarding our half-year results. The nearly complete loss of COVID business and destocking by our customers slowed our revenue growth, particularly in our healthcare business. Overall, we were able to increase revenues by 11.3% to 602.7 million CHF.
This corresponds to a 5.6 organic growth, adjusted for the positive acquisition effects and a strongly negative currency effect. This includes a 4.7 sustained positive effect deriving from price increases. The healthcare business has been a low-cyclical and dynamically growing business for decades. This is reflected in our growth of more than 40% since 2019, excluding COVID effects. Accordingly, we have continuously invested in our production capacity expansion. In addition, we advanced certain investments due to the pandemic.
The temporary low-volume growth has now led to underutilization in our healthcare plans. The one-time higher energy costs and the temporarily unfavorable product mix development had a negative impact on our margins. The accumulation of these temporary negative effects led to a decline in profitability.
The operating profit decreased to CHF 60.5 million and a 10% EBIT margin. Due to higher financial expenses, net income decreased to CHF 32.1 million. I would like to emphasize here that the long-term growth trends in our markets remain fully intact. This is demonstrated by the large number of new projects with existing and new customers that we gained despite price increases in the H1 of 2023. I will come back to this later.
Here you can see our organizational structure with the two market-oriented business areas, Healthcare Solutions and Industrial Solutions. Our market units are supported by the three group functions: technology and innovation, finance and shared services, and sustainability and operational excellence. Next slide, please.
I will now move to the business performance of our two business areas. I would like to start with Healthcare Solutions. In this business area, we offer high-quality system, critical elastomer components for vials, syringes, and delivery systems for injectable drugs. The Healthcare Solutions business area was able to compensate for the loss of the high-margin COVID business through growth and price increases in its regular business. Reported revenues of CHF 253.8 million were slightly lower than in the very strong prior year.
However, this represents a slight 0.6% organic growth, adjusted for currency and acquisition effects. This includes a significantly positive effect of 5.3%, deriving from implemented price increases. This will support our margin in the future. In the short term, the volume decline, which is unique for this low cyclical business, led to underutilization of our plans.
This was accompanied an unfavorable product mix development. As a result, the EBIT declined to CHF 39.8 million, and the EBIT margin to 15.7%. We remain very confident for the future. We are in contact with all leading pharmaceutical companies and have a promising project pipeline. I will come back to this later to this.
As much as our advanced investments are waiting on earnings this year, they will enable our growth and review scaling effects as soon as the environment normalizes. Walter will present further information on this. Now I would like to discuss the Industrial Solutions business area. Here, we offer system-critical elastomer components for Mobility, Connectors, General Industry applications, and Food & Beverage. In the Industrial Solutions business area, we increased revenues to CHF 315 million.
Adjusted for acquisition and currency effects, organic growth amounted to 10.1%. Our absolute EBIT, at CHF 20.7 million, was significantly higher than in the previous year. As a result, the EBIT margin improved to 5.9%. Contract-related higher electricity costs at our Swiss plant of some CHF 11 million prevented a stronger profit recovery this year, that will become visible in 2024 and 2025. QSR, which we acquired in May 2022, contributed CHF 81 million to revenue as a Connectors business unit.
The integration is proceeding according to plan in the current year. The implemented optimization measures have an impact and ensure a continuous margin improvement. The cross-selling projects with the Mobility business units are also developing well. Mobility achieved a significant 9% increase in revenue.
This was despite the fact that the economy in China did not recover as expected in the H1 of the year. The transformation to e-mobility is making good progress. More on this in the outlook. The General Industry business unit was temporarily held back by destocking of European customers and the SAP roll out at the main US plant. Business in the energy sector developed very positively, and we expect a significant increase in margin in the H2 of the year.
The Food & Beverage business unit, once again, grew well ahead of the market at 70%. In addition to existing business, all four business units succeeded in winning a large number of promising new projects with existing and new customers. I would like now to hand over to Walter. Walter, the stage is yours.
Thank you very much. A warm welcome from my side as well. Hello, everybody, I'm delighted that you are attending this call today. I'm happy to provide you with an overview of the development of the key financial figures in the H1 of 2023. Let me start with the change in revenue in the H1 of the year. Here in this slide, you see it.
The 5.6% organic growth this half year is almost exclusively attributable to Industrial Solutions. This business area grew organically by 10.1%. This includes price effects of just under 4% in volume and mix effects of over 6%. Healthcare Solutions, on the other side, achieved only a slight organic growth of 0.6%, as already explained by Dirk.
Some more detailed information will follow on the next slide. The two companies we acquired last year, which is QSR and Xinhui, contributed another CHF 55 million, or 10.2% as an acquisition effect to growth in this half year. However, this figure does not represent the total half-year sales of these two companies. The reason is that QSR and Xinhui were already included for 2 and 4 months in the H1 of 2022.
The stronger Swiss franc, well, actually, mainly, nearly against almost all currencies, reduced revenues by CHF 23.8 million, or 4.5% in the H1 of 2023. Here you see the corresponding revenue bridge for Healthcare Solutions with the various influencing factors. It gives the more detailed explanation of the revenue development at Healthcare Solutions.
The decline in COVID revenues of CHF 26.6 million was offset by growth in the regular business of CHF 12.5 million, or 4.7%, and a price increase in the regular business of CHF 15.8 billion, or 5.9%. You see, the overall organic growth in the regular business was actually 10.6%, actually offsetting the COVID loss. On the other side, we had the strong Swiss franc, which had a negative impact of CHF 14.9 million. As a result, the reported revenue decreased by a total of CHF 11.9 million. The price increase effect was larger than the volume growth of the regular business in the H1 of 2023.
Taking the decline in COVID revenues into consideration, this resulted in an overall 5.3% volume decline. This is the reason for the aforementioned due to underutilization of our recently expanded production capacities. Of course, as we have seen and as you can feel, the COVID effect hurts. However, despite the destocking of our customers, we succeeded in growing our regular business and implementing substantial price increases.
This brings me to the EBIT bridge, which you see here, and these figures that you see here are actually absolute values. The healthcare EBIT decreased by CHF 15.5 million due to the underutilization mentioned above or before, and the unfavorable product mix change.
The Industrial Solutions business area, QSR and Xinhui, which were included for 6 months for the first time, improved their absolute EBIT by CHF 2.8 million and CHF 4.3 million, respectively, as you can see here. This was not enough to compensate for the decline at healthcare. The business unit Connectors is developing well in terms of profitability so far in 2023, a double-digit run rate EBIT margin was reached in recent months. We are confident that this development will continue according to our plan, that we should achieve an EBIT margin of around 15% in the final quarter of 2023. The ultimate goal is clear: we want to move into 2024 with 18% and beyond.
The strong Swiss franc reduced profits by an additional CHF 3.6 million, or 5% in the H1 of the year. What this development means for the EBIT margin is shown on the next slide. Here is the development of the EBITDA and EBIT margins of the entire company and the two business areas in the first six months of the current year and the three prior year periods. It needs to be noted that depreciation at Healthcare Solutions has increased in recent years. You see it here, calculated here, it used to be 7.3, 7.5% difference. Right now, this year, it's at 8.7.
This summary depicts how the unfavorable change in the product mix and the capacity underutilization led to a decline in margins for the Healthcare Solutions area and the company as a whole. The Industrial Solutions business area was able to increase its margins, thanks to a positive development of the business units, Connectors and Mobility. Contract-related, significantly higher electricity costs at the Swiss plant, which produces mainly for Food & Beverage, prevented a stronger EBIT margin recovery.
This will return to normal levels in 2024. The lower margin is the accumulation of several temporary effects. We remain convinced that the margin will recover substantially once the destocking by our customers is completed and the environment normalizes. This brings us to the overall picture of the income statement. This income statement, shown on this slide, is a functional income statement.
You see the distinction between functions, production, research and development, marketing and sales, and general or general administration. The decline in profit figures reflects the underutilization of our recently expanded production capacities, which is manifested in the cost of goods sold. Keep in mind that the additional depreciation, for example, of the Indian plant, is 100% flowing into that caption. In addition, this is also due to the unfavorable product mix development and the one-time higher electricity costs in 2023.
The financial result always includes unrealized losses or gains on foreign currency hedges, in addition to the higher interest costs of CHF 7.6 million. As of mid-year, they had a negative impact on the financial result due to the weakness of the US dollar. The weighted average tax rate for the half year is 22.7%.
The tax rate is temporarily higher due to acquisition effects. We are continuing to adjust the acquired constructions and to bring the tax rate into the range of the communicated 23%-26%. As a result of the development explained above, net income decreased to CHF 32.1 million. This corresponds to CHF 1.89 or cents per bearer share. I would like to move on to the balance sheet. As you can see, the balance sheet structure remained more or less unchanged.
On the asset side, we succeeded in reducing the trade accounts receivables, despite an 11.3% sales growth. Inventories also decreased due to the reduction of our safety stocks, and also this reduction, despite the sales growth that we have shown. The inventory reduction will free up further liquidity in the H2 as well.
On the liability side, the CHF 150 million bond, repayable in May 2024, was reclassified as a current liability. Accordingly, this leads to a non-current liability reduction, so there was a flip, as you can see. The equity ratio was at 29.6% at mid-year. A slight reduction compared to year-end 2023, where we have been above 30%, stems from the seasonal dividend payment that's happening normally in the H1 of a year, and cumulative translation adjustments due to the strong Swiss currency.
Strengthening the balance sheet remains a very high priority for Datwyler. We focus on countries with high interest costs or unfavorable currency developments when further reducing debt. This leads me to the cash flow statement. The cash flow statement has returned to normal compared to the previous year.
The previous year's period was characterized by the two acquisitions and the resulting necessary debt increase. Cash flow from operating activities now amounts to CHF 95.9 million in 2023, or the H1 of 2023. The free cash flow increased to CHF 61.2 million. As Datwyler made early investments in the past and is therefore able to sharply reduce new investments. This free cash flow was actually used in 2023 for dividend payment on one side and debt reduction on the other side. We believe, or I believe, that this free cash flow development is encouraging. We have returned to the previous year's figures for free cash flow, as you can see in the chart on the right-hand side of the slide.
This development will allow us to accelerate the debt reduction in the H2 of the year. As I just explained, the room for action in the H1 was limited due to the dividend payments and small repayments in the, on the debt side. On the next slide, you can see the development of return on capital employed or ROCE. The decreased results from a double effect. On the one hand, the average capital employed increased to CHF 960 million as a result of past investments.
However, it is very clear that this figure represents a peak, as a reduction will now occur due to the development shown previously, you know, net working capital, but also the reduced investments. On the other hand, as already explained, EBIT decreased due to the negative one-time effects.
The return on average capital employed decreased to 15%, as you can see on this slide. With the investments brought forward, investments we did in the past, the sales growth forecast for the medium term and the associated improvement in EBIT, ROCE will also improve again to well over 20%. Last but not least, this slide depicts the development of our investments over the last 7 years, which will accelerate our long-term growth. The figures in the previous years are in each case, the investments for the entire year. In the year under review, we have invested a total of CHF 29.2 million in the first 6 months.
This is almost 40% less than in the same period last year, and some 25% less than depreciation and amortization in the same period, as you can see in the three columns on the far right. At 4.8%, the ratio of CapEx to revenue is much lower than in previous years, because Datwyler is coming out of a multi-year investment cycle. For the full year 2023, CapEx will range between CHF 60 million-CHF 80 million. In my view, the column chart impressively shows how we have invested in the expansion of our production capacities in recent years and are now ready for scaling effects. However, it's not only our infrastructure that is fit for the future, but also our employees, our systems, processes, and culture.
The investments brought forward and advanced investments we did in the last years, particularly in the healthcare segment, will ensure significant economies of scale as soon as customer destocking is completed and our demand or that demand recovers. Thanks a lot for your attention. With that, Dirk, I would like to hand over to you for the outlook.
Yeah, well done. Thank you very much for this financial insight. I think the good things, how you have explained it. Let us have a look at the outlook, and let me first of all, start with our unchanged mission, and that is, that we would like to materializing ideas for a safer, smarter, and more sustainable world. The long-term growth trends in our markets are intact, and we are strategically positioned as never before to benefit from them.
In the short term, the negative external one-time effects will prevent us from realizing our full potential. The COVID revenue loss, and especially speed exists and the destocking by customers will continue to lead to underutilization of our capacities, and to an unfavorable product mix in the H2 of the year.
In addition, the risk of a further weaker economy and currency and developments continue to call for caution, beside as well, some opportunities. For the full year 2023, we are therefore targeting revenues of around CHF 1.175 billion, and an EBIT margin of around 11%. At Datwyler, we take a long-term management approach and do not allow short-term external weaknesses in demand to distract us from our strategy.
However, we have responded to the current market situation by implementing cost-saving measures and initiating further ones in the H2 of the year. This will have a positive impact in the future. In the H1 of 2023, we succeeded again in winning a large number of promising new projects in all business units. This is thanks to our strong market positions and our recognized core competencies.
I will come back to that at the end of my presentation. This confirms that the long-term growth trends are intact, and our positioning is right. We therefore maintained and selectively expanded our capacities and competencies for the acquisition, implementation of new customer projects, the further continuous growth development, and innovation projects. A good example of this is the continuous expansion of our product and service portfolio for fast-growing large molecule drugs.
For example, we launched the UltraShield™ film coating for our healthcare components in the H1 of the year. This complements our existing spray coating, which is well established under the OmniFlex® and NeoFlex™ brands. We produce all coated components exclusively at our FirstLine plants in the U.S., in Europe, and in India. Looking at large molecule biotech drugs, here, coating of components for containers and syringes is becoming increasingly important.
Coating prevents reaction and leaching between the drug and the elastomeric material. Based on initial feedback, we are very confident that we will be able to offer additional customer value with film coating in the long term, which will help us to grow profitable above the market average. We are currently winning an encouraging number of new projects in our Mobility business unit. In particular, the share of development projects for electrification of cars is continuously increasing.
We are working with vehicle manufacturers and battery system producers. We are succeeding in convincing leading Chinese manufacturers of electric vehicles, as for example, BYD, of our capabilities as well. We have strengthened our presence with local development engineers to ensure optimum customer support. This is ever so important, as Chinese manufacturers are increasingly shaping developments in electromobility.
To ensure that we can optimally manufacture our future Mobility products portfolio, we are in the process of streamlining and consolidating our plans. On this slide, you can see some examples of our customized sealing solutions for e-mobility. Due to limited time, I would like to briefly highlight the battery as one of the key topic today. The main challenges are temperature management and safety. We develop such specific materials and solutions based on our competencies.
These either ensure high thermal conductivity or act as a protective shield in the event of uncontrolled, strong heat generation. We thus offer attractive solutions that ensure the safety and long-term performance of batteries. The transformation to electromobility is currently leading to increased expenditure. However, the interest of our customers and the large number of new projects show that we have very good opportunities to increase our share of sales per cars.
This slide covers the expected development of powertrains and the electrification rate of cars produced worldwide in 2023, and over the next seven years. Independent experts predicted in 2027, for the first time, more electric and hybrid cars will be produced than cars with pure combustion engines. By 2030, the electrification rate of newly produced cars is expected to increase to 58%.
Everybody knows that these figures could even change in the coming years, and therefore, Datwyler is always be aware that could be faster than expected. The number of cars produced annually worldwide increased by some 90% by 2030. The number of cars produced annually with internal combustion engines decreased by around 27% in the same period. In return, the number of electric and hybrid vehicles produced each year will triple.
This corresponds to an average annual growth of some 15%. Here we have shown, as an example, the development of three attractive end markets that are very important for Datwyler. The independent growth forecast for electric and hybrid vehicles, for electrical connectors, and for prefilled syringes, show that the megatrends in our markets are intact.
The average annual growth rate of 8%-15% will also keep demand for our system-critical components for these systems high in the coming years. Now, here's a recap. Why Datwyler will benefit from the growth trends in the market served. First of all, we have clearly leading positions in markets with high entry barriers.
Our system-critical components make a decisive contribution to the functionality and quality of end products, while at the same time, they represent a very small share of the total cost of customer systems. We are a competent development partner, thanks to recognized core competencies and solution design, materials know-how, and operational excellence.
Please note, especially this cooperation of this components, of this competencies are very important, because, of course, we have some competitors in the market which having similar ones, but not in this combination. As the creator of elastomer components, we are the owner of the corresponding IP rights. It is the interaction of these core competencies that gives Datwyler a unique position in the served markets.
We have a global presence and can offer our customers a local-for-local approach with consistent product quality, as we have production plans on four continents, always very close to our main customers. We are pursuing the right strategic priorities for a dynamic world. At the same time, our focus on sustainability, agility, digitalization, and profitable growth makes us attractive to talents. On this basis, I'm convinced that the forecast market and revenue growth will lead to a disproportionate EBIT growth in the medium term via scale effects. Finally, I would like to draw your attention to our next Capital Markets Day on Friday, November 10.
We are delighted to keep you up to date with further developments in our key markets, because we are aware that in such a short call as what we have today, we cannot explain in detail what all the effects will be in the market and how, let me say, we believe, or why we believe that we can benefit in the future. We will give you a further in-depth insight on our long-term planning, especially for the healthcare market, how we will benefit from the high scaling effects in the future. We have the business model of the Connectors business unit, and finally, how we would like to generate synergy effects together here with the Mobility business unit together.
There's a couple of other topics that let us present that to you in the autumn of this year. I'm sure that you will get some further interesting information. Please reserve the date and discover our growth and innovation projects yourself in person on site. The details, further details will follow. With that, I would like to stop here the presentation. Hopefully, you got some further insights. We are open for your questions, and Walter Scherz and myself, we are happy to answer that.
We now begin the question and answer session. Anyone wish to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handles and eventually turn off the volume from the webcast. Webcast viewers may submit their questions or comments in writing via the relative field. Anyone with a question may press star and one at this time. The first question is from Michael Inauen from Stifel. Please go ahead.
Thank you very much. Good afternoon, everyone. I have a couple of questions, if I may. First of all, how much COVID revenues you still had in the H1? Because I thought you would have probably around CHF 40 million, CHF 50 million per year. Is there another CHF 25 million that you're going to lose? That would be the first question.
Second question is on the energy in Switzerland, so or generally, you said CHF 11 million more cost for e-electricity, and this would change next year. What gives you the confidence that this will change next year? Do you have new contracts there already for the next year, or how does systematics work there? Also question regarding QSR: Can you maybe share an organic growth data here?
I assume there was pretty, strong impact on the weak dollar, but how much was it really growing volume-wise? Maybe this would be three questions for the moment. Thank you.
Yeah, Michael, thank you very much for your question. Let me start with COVID. I think COVID is more or less totally gone. We had at the peak, 2 years ago, or 2021, it was more than close to CHF 17 million, or slightly above. In last year, we had slightly above CHF 50 million, and now in this Q1 of 2023, it's more or less close to zero. That was a very fast decline when we compare that with the last year, so that is more or less. Let us consider that close to zero. That is the first part of your question, yeah. If we come to the second part, that is about the energy cost in Switzerland.
Yes, we had an unfavorable contract which led to an additional CHF 11 million cost of energy in Switzerland, where we were not able, due to the contracts, to pass that through to the customer. Due to the fact what we are seeing, we already have to sign the energy contracts for the year 2024 and 2025, we will see a significant reduction of this cost in the next two years. A big portion already next year, in 2025, it should be already more or less analyzed to a level which is, let me say, not any more significant to this reduction possibility in Schattdorf . Yeah.
Please, yeah.
Yep. Then for the organic growth of business unit Connectors, that is in the mid-single digit, area. Michael, I hope that helps.
Yes, that does. Can I just have an add-on question? Sorry. On, you mentioned the projects that you're winning in healthcare. I mean, is there.
Yeah.
Is there any idea on, you know, is there any number you can put to that? I mean, what are we talking about? Are we talking about potential of CHF 50 million in the future, CHF 80 million or more? You know, just to understand, you know, because a number of projects, it's really hard to imagine something hard behind that.
Yeah. Of course, you know, to bring a number behind this is not so difficult, but the question will be when it comes into production. Let me give you an example. I think we have just figured out the top 10 projects which are having a considerable top peak volume of around CHF 100 million. Only the top 10 projects, what we are currently working. For a couple of them, we have more, very high probability that is coming through. We expect, for example, that such a project will be fully visible at the peak value in the year 2026-2028. Yeah? Of course, that compares will vary due to the, let me say, to the market, the market development of such product lines.
As a customer, the customer side, we will be prepared, and hopefully the products will be very successful from the customer perspective, I think that is very good. Having said that, of course, we have a large number of further projects, let me say, which will help us in the years to come, to come to our growth range, what we always said, what we would like to achieve between 8% to 12% after we have, let me say, this de-stocking, effects behind us. That is, but nobody can say today when that will be happening. Okay.
Perfect. Yes. Thank you very much, Dirk, as well.
You are welcome.
The next questions come from Benjamin Thielmann, from Berenberg. Please go ahead.
Hey, everybody. This is Ben from Berenberg. Maybe a couple of questions from my side as well. Maybe in terms of margins for the midterm guidance, you were guiding for Healthcare Solutions, roughly 22%-25% margin, and for Industrial Solutions, somewhere between 12%-15%. As of today, we're roughly 16% margin in the Healthcare Solutions business, and you already mentioned that you have a couple of new projects which should flow in the P&L somewhere in, like, 2026 onwards. My question is, if you want to meet your midterm guidance, let's say 20% on Healthcare Solutions, you should increase the margin by about 150 basis points per year. What are the short-term catalysts we can see there?
Yeah. First of all, thank you very much for the question, and of course, that is a valid one, and of course, that is very important. Let me start with Industrial Solutions. I think with Industrial Solutions to be coming in the range of 12%-15%, I think it should be becoming faster after we having as well in some areas here as well, not only the destocking effects. The reason why that should become faster is due to the fact that we have a lot of initiatives internally, which will lead into the cost optimization, which we really have more or less a couple of them in hand. We are not, let me say, so strong related to the market demand.
From that perspective, I think we should be able to generate it in the next two to three years, maybe earlier, depends on the market demand. When it comes to the area of healthcare, of course, it's more difficult but here is the same and similar little to IS, when we are talking about the fall-through. That means we explained that we currently have, and Walter did it via his investment graph, that we have not so much to invest in the infrastructure for the next, let me say, couple of years.
We will be able to use our existing equipment infrastructure, which we have around the globe, to follow the demand from the market, and that should be lead to a very high fall-through from net sales to EBIT. When we talked about the scaling effects, and that should be very fast going forward. Depends on, and that is very difficult to say today, depends on how the market demand will be visible in the next years. It could be that the actual situation will stay at minimum for this year in the market, and maybe as for the beginning of next year or even until the end of next year.
Nobody is, can tell that today, but if it will be over, I'm sure that we can really fast increase the EBIT margin.
Maybe a follow-up question from my side. If we assume that the destocking on the customer side, let's say, takes until H1 2024, until what year are the midterm guidance? Is it 2026, is it 2027?
I said that we should be able to come into that direction two to three years after we have the normalization of the market.
Okay. Okay.
Yeah.
Okay.
Yeah.
Very.
Of course, that depends as to how fast it is going then, okay? As I explained.
Okay. Maybe one more question from my side. Maybe you can give a little bit of color on the margin side of QSR, for example. Like, in terms of growth, I agree, like, I'm in line there, but maybe you can give some color, like, what margin do we see for QSR as of today? Has that decreased in H1 2023? Maybe what do you expect for the whole year?
Well, you know, as I said, right, we saw. As you know, in 2022, we were negatively surprised. We actually had a negative margin. We then had to say, "Well, we need to rework on QSR view connectors." We had one-time costs last year that actually resulted from, you know, really cleaning up Mexico, kind of reestablishing the whole company in terms of the material flow, optimizing the production flow, et cetera, et cetera. Right now we see nice developments. What does nice developments mean? Year to date, we are at a very high single-digit rate.
In the EBIT margin rate, the last few months, we actually saw double-digit EBIT margins, and the expectation is that by the last quarter of 2023, we'll be at a level of around 15%. With those 15%, that's not the year-to-date figure, that's kind of a expectation by end of the year. With those 15%, we then start into 2024, and we believe that, you know, the defined targets, which we set at one stage, you know, 18%-20%, that should be then going into 2024. Having said that, there is a lot of work to do.
We are working on that, quite comprehensively, but we see that the plan that we developed end of 2022, actually seems to run relatively well.
Mm. Okay. Thank you. That's it from my side.
Thank you very much.
There are no more questions from the phone at this time.
We do have two questions that came in via chat function. One is about the debt situation. I think it's Walter who will answer it. What is your ambition to reduce debt for full year 2023? What was the reason for a slight increase in the PEMA loan of CHF 20 million in the H1 of 2023?
In the H1 of 2023, we reduced our debts by a little bit more than CHF 10 million. We had free cash flow of CHF 61 million, which is considered kind of pre or normal levels again. That free cash flow was used for dividend payments of CHF 54 million, as well as the repayment of CHF 10 million. In the H2 , we expect that our free cash flow will actually repeat again, if not improve. We will see.
... CHF 1 million plus in free cash flow, which we then can actually use for debt repayment. We believe that we will reach CHF 70 million-CHF 75 million for the whole financial year 2023.
The second part of the question on, PEMA loan. Why did the PEMA loan increase? The reason is simple. We repaid $35 million in our US dollar term loan. In the US, with external banks, we returned $35 million. That could not be all borrowed by the US dollar cash flows, so we had to kind of finance that out of Switzerland. Because PEMA got the dividends, used that dividends to actually pay this amount back.
There's a second question regarding financial figures, and this one is about the networking capital, and the person asked if we could repeat our outlook for the networking capital development in the H2 of 2023.
When we look at accounts receivables and inventory, we could slightly reduce those positions. Also having in mind that our sales grew by 11.3%, keeping networking capital stable is, in our view, already a good achievement. Of course, at the same time, we further want to reduce inventory levels. We expect that, you know, the 7% reduction we saw from last half year to now, to increase that by another 5%, and the same is happening with accounts receivables.
At the moment, the more or less, 12% are overdue accounts receivable, whereas, 8% of the 12 is in the bucket between one and 30, and we want to reduce, especially the buckets above, 30, and we are confident that this will, free up other, cash and actually, improve the net working capital position further.
We have one last question from the chat function, and that is regarding our Food & Beverage business. Here the question is: How do you assess the potential EU ban of aluminum coffee capsules for Datwyler?
Yeah, thank you very much, to have this question here, because it is quite important to give you some further insights. There was a lot of discussions around even in Switzerland, especially in the newspapers. I think we believe that we have several indications that the planned new EU regulation will have no negative impacts on our Food & Beverage business. I think, first of all, we have to understand that the single-serve coffee capsule markets, so far, the coffee capsules are not defined as a packaging material. That will be the next step. That will be defined as a packaging material.
Then, of course, inside of this EU regulations, which is not only covering the coffee capsules, that is around the full packaging industry, of course, you can understand that that means that would have a huge impact if we are talking an aluminum ban. Far, therefore, we have some indications that we may come to a situation that the recycled aluminum will be the favorite material for the future.
Having said that, if that is the case, and that is the option here, additionally, the plastic materials will be banned, that could be even very positive for our business. Today, we have a couple of customers which are staying in front of our company, which are waiting just for this decision of the commission in Brussels.
We expect that this will happen at the beginning of October. If that is going in the positive way, we even can accelerate this business further into the future. From our perspective, the risk is so far low. As you know, nobody knows. We will see in October what the final decision will be. I hope that helps. Okay, good. That seems that there are no further questions.
With that, I would like to give you a big thank you for joining our call here. A big thank you to my colleagues here, which supported here for answering all your questions. With that, we wish you a nice summertime. Enjoy the days. It would be great if we can see you again during our Capital Markets Day in November.
I'm looking forward and wish you a great day. Thanks a lot.
Thank you very much. Have a good day.