Ladies and gentlemen, welcome to the Semperit First Quarter 2024 Results Conference call. I'm Moira, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Haider. Please go ahead.
Good afternoon, ladies and gentlemen, and a very warm welcome from Vienna to our First Quarter 2024 results presentation. It's good to have you with us, and we appreciate your continuing interest to our company, Semperit. With me in the call is Helmut Sorger, our CFO, and who will take us through the financials later in the call. But let me start first with a short recap of the main developments in the first quarter, followed by the detailed operational update. Finally, after Helmut has presented the financial details, I will finish our presentation with the market outlook, our management agenda, and the 2024 guidance. Starting on slide 3, the key highlights for Quarter 1 2024 are a solid performance based on stable revenue and a 9% increase in EBITDA year-on-year, which was arguably against tough comparables given the price increases we had introduced in late 2022.
We consistently pursue our industrial strategy with our two divisions and have paid a dividend of EUR 0.50 per share for the 2023 financial year. Further focal points of the results are clearly RICO's contribution, as well as the handover of the surgical operations to Harps within the next 12 months, which, as you know, is a legacy asset from our previous medical business and was originally supposed to run by Semperit as contract manufacturing until 2028. RICO contributed revenues of EUR 24.3 million in Quarter 1 this year, despite lower call-offs of some cyclical customers. In turn, Helmut will elaborate more on the accounting treatment of the earlier-than-expected handover of the surgical business, which we see as a positive to further reduce complexity for our company. Finally, we can confirm our guidance of around EUR 80 million EBITDA by the end of 2024.
By now, most of you are familiar with the slide at page 5, but we thought it might help to remind you of our new divisional structure, which revolves around Semperit's two main business models, one being the commodity-driven, highly standardized volume business of industrial applications, where we aim for cost leadership and a high degree of unification of products, processes, and equipment supported by sales excellence. The other being the innovation and technology-driven engineered applications, with a high level of customization and a focus on attractive niche markets. In contrast to the commodity-driven business of industrial applications, here we are predominantly dealing with a project and tender business and have a sales team strongly involved with our customers and their needs.
We feel that the better you are familiar with the two different business models, the better you will appreciate the moving parts within each division in the current economic situation. Turning the page, we have prepared a visual summary of the Quarter 1 2024 revenues and EBITDA by each division at a year-over-year comparison, and leaving out the surgical operation, which is now defined as an asset for sale and consequently reported as discontinued operation. As you can see from the two pie charts, I am pleased to report a strong operating leverage for Semperit Industrial Applications, while, at the same time, Semperit Engineered Applications had a positive impact from recent acquisition.
Starting with the update of the operational performance on divisional level at slide 7, markets for Semperit Industrial Applications have stabilized but at a low level, and at this stage, we don't see signs of any short-term market recovery yet. On the back of lower volumes, revenues are down by 25% year-on-year and EBITDA by 21%. As the margin recovery, which you can see on the upper chart, was driven by capacity adjustments and cost cutting, the ongoing overhead reduction will help to improve future operating leverage. Within the segments, inventory digestion and restrained customer demand have resulted in short-cycle volatility at hoses. In turn, profiles are still impacted by a weak construction industry, notably in Germany. However, going forward, we expect benefits from our current focus on early cyclical products.
On the next slide, we can report growth both at top line and operating profit for Semperit Engineered Applications. Here you see the year-on-year comparison clearly benefited from a change in the consolidation range. Revenues, we are up by 31.7% year-on-year and EBITDA by 17.2%, supported by continuously strong demand in mining, which led to high utilization rates and strong operating leverage combined with an improved product mix. The latter was particularly relevant for FOAM, which managed to increase profitability and had a good start in Quarter 1 2024, notably through mountain applications, handrails, and transport-like railway industry. Here we also focus on highly promising product-market combinations such as our hybrid handrail, which was just recently introduced to serve market demand, especially in Asia. In turn, belting benefited from the ongoing demand in mining, but we would probably have a more cautious outlook going forward.
Additionally, we had support from commodity prices in 2023. As mentioned before, RICO contributed EUR 24.3 million in sales and EUR 2.3 million in EBITDA on the back of temporarily lower utilization given market-related project delays and lower call-offs from some cyclical customers. In toolmaking for external tools, for example, some projects were postponed, as example from automotive or construction industry, while new businesses for the production of liquid silicone parts benefited from several orders from major customers. With this, I would like to hand over to Helmut to take us through the financials.
Thank you, Karl. As always, a warm welcome from my side as well. Let me start with the financial highlights for the first quarter of 2024 on slide 10. There are 5 key themes I would like to highlight today. Our focus remains more than ever on cash and working capital management. We're in a strong financial position and continuously working on selected measures to improve our working capital, not only on inventory but also to optimize payable and account receivable position. We also prioritize on those things which are under our own control, in particular structural cost adjustments to regear operating leverage for future market recovery. Let me remind you that we've started a cost reduction program last year aiming to reduce the cost by more than EUR 10 million.
By the end of the first quarter 2024, we've already achieved EUR 9.9 million that can be qualified as P&L effective compared to the baseline of 2022. Having the right operating leverage and therefore resilience is all the more important as operating cost inflation is clearly visible across the markets. However, our cost sensitivity and ongoing cost control measures will lead to a further improvement in operating leverage as soon as markets pick up again. We further pursue our digitalization strategy with the One ERP project taking shape. We had the kickoff of the project on April 29th and are now starting the workshops, as well as other initiatives in digitalization with a quick payback being currently underway. From a reporting point of view, surgical operations are now treated as a discontinued operation, with a handover to Harps expected within the next 12 months.
I will elaborate on this just in a minute. Finally, we maintain our shareholder return policy and have paid EUR 10.3 million in dividends for the 2023 financial year on April 30th. Over the page, you can see a summary of the major financial KPIs for the first quarter on a year-on-year comparison. And while we had the flat revenue growth, I'm particularly encouraged by the 9.4% growth in EBITDA and the implied higher margins. The bottom line was positive and also the free cash flow. Just to remind you, last year we were in a cash positive position, so the major change here is interest expenses. In turn, Capex was up significantly over the period, and I will provide more details on each item later in my presentation.
On the next slide, the analysis for revenue and EBITDA margin over the last 12 months remains a good exercise not only for investigating cyclical trends but also keeping track of operating leverage. The latter was most evident between the first quarter of 2022 and the first quarter of 2023. We're now getting prepared for the next upturn. Over the last quarters since Q1 2023, the downward trend of revenue and EBITDA margin has clearly slowed down within the four-year period of our analysis. We would note a stabilization at a higher level now with early signs of reaching the cyclical trough. From a management perspective, we aim for more resilience in our performance by focusing on cost, share wallet wins, and capacity adjustments.
The EBITDA average chart on the next slide is probably of most interest for your models as we show the main moving parts for year-on-year EBITDA development. This time, both price and volume effects follow the same downward trend in addition to further inventory reduction. This was largely offset by lower costs of material and purchased services, which includes in our chart energy and logistics. Hence, the 9.4% increase in year-on-year EBITDA is essentially due to cost savings and the changes in consolidation range. Please note that we've now achieved EUR 9.9 million of the original EUR 10 million cost reduction program, and I'm grateful to everybody involved. Let me emphasize, this relates to overhead costs. We're working on further cost reductions, especially now as the separation from the remaining medical business is going to be fulfilled.
The surgical operations division includes remanence cosst of the production site in Wimpassing, which are still included in our cost base and which will be addressed accordingly. Turning the page, I would like to spend a minute on the planned handover of the surgical operations to Harps within the next 12 months, as this implies not only a change in reporting towards assets held for sale but also an impairment of EUR 2.8 million. As you remember, we had originally agreed in the SPA with Harps to run the surgical gloves business until 2028 at latest, which has now been amended for a new co-use agreement which we signed on March 21st. As a result, Harps will use the production site in Wimpassing after the sale of surgical operations and operate the business, with us being in the position of, if you want, a landlord only.
This, of course, entails, once this handover is happening, that the business is de-recognized. And for the moment, since we see a transaction likely within the next 12 months, we have to apply IFRS 5, which means that sales, EBITDA, and EBIT, among our main financial KPIs, have been excluded from continued operations. In turn, you're probably most interested in how we arrived at the EUR 2.8 million impairment. This essentially reflects the cumulative depreciation for 4 years of the assets involved since we basically envisioned to run a CMA until 2028. Now the handover is earlier than expected. So, in effect, we have to catch up with that. To help you with like-for-like comparison going forward, revenues of the surgical operations amounted to EUR 10.8 million in the first quarter of 2024, with EBITDA being at EUR 1.9 million and earnings after tax at EUR -1.4 million.
Setting this into the context of our previous sale of the medical business at the cash and debt-free sales price of EUR 115 million, subject to the customary price adjustment mechanism, EUR 108 million was attributable to the first closing for exam operations, and EUR 7 million now is attributable to the second closing for the surgical operations. We hope this has helped to explain all the nitty-gritty details of this transaction. Moving on to slide 15, after having made great efforts to reduce trade working capital as a percentage of the last 12 months' revenues to less than 16% at the end of 2023, we've now reverted to somehow higher ratio, which is basically seasonality-driven, but our aim is clearly to stay below 20%. From the chart that you see, we have trade payables that are under control.
Of course, the trade receivables were stabilized, although business activity has picked up a little bit. Inventories are, of course, our main focus with regard to raw materials as well as finished goods. Over the page, the main moving parts from operating cash flow to free cash flow are the maintenance expenses and the small growth projects at EUR 16.6 million, as well as net interest payments at EUR 2.9 million. I've said it earlier, remember last year we only had minor interest payments for the private bond. Now, of course, we're in a net debt position. We have these interest payments, and this is the main driver for the deterioration in the free cash flow this year. On the very positive side, EUR 3.5 million positive free cash flow also means that we paid for a large share of our strategic investments ourselves.
The bridge chart on slide 17 shows the main moving parts in the net financial debt between December 31st, 2023, and March 31st, 2024. This chart is perhaps a nice illustration that we can finance our growth projects, both small and large ones, from the operating cash flow we've generated, with interest, leasing, and minority dividends essentially amounting to the EUR 5 million increase in net debt. Turning the page, I can only reiterate that we have maintained a resilient balance sheet and very strong financial profiles with cash and cash equivalents at EUR 120 million at the end of March. Of course, now in the balance sheet, you see the assets held for sale as well as the corresponding liabilities with regard to the surgical operation.
As I've mentioned earlier, in previous quarters, our capital structure has been adjusted towards a more balanced share of debt and equity, and this is represented with our equity ratio being very consistent at 45%. Let me wrap up my presentation with an overview of our capital allocation priorities and an update on the uses of cash on slide 19. As mentioned earlier, our investments were made for maintenance, small and large projects, which were essentially financed from our operating cash flow. This adds up to EUR 22.6 million CapEx in the first quarter, while dividends were paid in the amount of EUR 10.3 million. Finally, we have not made any acquisitions over the last three months, but our M&A policy remains intact with a focus on bolt-on acquisitions to expand our product portfolio or the regional market share, aiming for fast integration with earnings accretion and attractive synergies.
This is particularly true for smaller M&A projects, which have to be a strategic and a cultural fit for Semperit. With this, I've come to the end of my part of the presentation and would like to hand back to Karl for his final remarks.
Thank you very much, Helmut. Let me continue with the market outlook on slide 21. It can be relatively short with the next few slides as we essentially confirm not only our current market assessment but also the outlook for 2024. As mentioned in our previous results period, the current cyclical downturn has a particular impact on our commodity-driven business of industrial applications, which continues to be mostly evident in the weak construction yellow goods industries. The question now is, how much worse can construction really get? In turn, engineered applications provide not only a diversification effect with different dynamics but a resilient and stable business with its strategic focus on technology and industrial solutions, including mountain application, mobility, and healthcare. Overall, our assessment remains that we are still going through challenging market conditions with first green shoots expected towards the end of 2024 at earliest.
Turning to our management agenda on slide 20, 22, as we are consequently pursuing our industrial strategy with a distinctive focus on two competitive business models, I call it operating models. We keep our focus on profitable growth while managing the current economic downturn. In this respect, customer intimacy and technological leadership remain two major pillars. While anticipating ongoing top-line pressure, we continue to address this through share of wallet gains and various cost programs. Most importantly, the key focus remains on simplification, lean management, and operational efficiency, as Helmut has outlined before. Last but not least, I would also mention the separation from the surgical business, which, of course, is not dominating our day-to-day business but also requires necessary attention so that we can hand over the business as smoothly as possible.
On the next slide, we confirm our guidance for 2024 with full-year EBITDA expected at around EUR 80 million and Capex at around EUR 70 million. The latter will be divided between 40% growth Capex and 60% maintenance Capex in small projects. Finally, over the page, we have summarized the five tenets of our investment proposition with a key focus on global market leadership, innovation, our strong business model, and cash generation capacity. This links back to our industrial strategy, and the market will ultimately judge us on those criteria with our key focus on being a value play with a recalibrated platform for future growth. And I would like to highlight again, a global platform for future growth. With this, we have come to the end of our presentation, and Helmut and I are now available for any question you might have.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchscreen 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. Participants are requested to use only hands while asking a question. Anyone who has a question may press star and one at this time. First question is from Cristian Obst from Baader Bank. Please go ahead.
Good afternoon. I have four more smaller, I think, simple questions at the end. The first is on cost reduction. You almost reached now the EUR 10 million, which is mostly overhead. And so what do you expect going forward in the quarters to come, or is it now done, and cost reduction going forward is some kind of a normal business operation? Thank you. This is the first one.
Let me answer that real quick, Mr. Obst. The cost reduction program was basically designed as a project. We are going to transition it into overhead cost management initiatives as part of our management accounting processes. We first announced it in Q2 2023. So what we're going to do, we are going to continue to run this as a project for a year, meaning you're going to hear about it in Q2 again. It's progressing well. We are keeping track line item by line item. I think this is necessary when you get started with it. And of course, just to remind you, I mean, we absorbed the stranded cost for the separation of the exam glove business, and there's another portion of cost we need to absorb for the surgical business. So I think we are wise to continue that.
I already indicated in Q3 that we're positive that we can reach more than EUR 10 million, whether it be EUR 12 million, whether it be EUR 13 million, whether it be EUR 14 million. I think we will watch. But since the baseline is 2022, I think it's just fair to say at a certain point, we're going to stop reporting this as a project, and the differences will be continued operations because certainly, we're going to have headwinds too.
Okay. Makes sense. Yeah. Absolutely makes sense. But directly to this, if I'm right with my calculation, you had corporate costs amounting to EUR 6.2 million in the first quarter. So what is included there, and what will be the runway? As I think the target should be to come down well below EUR 20 million for a yearly basis for corporate, right?
Yes. The runway will be below 17. 15 is possible. There's basically two effects. It's possibly impacted by the overhead cost savings, but also there's an absorption effect in it because we absorbed EUR 11 million in overhead expenses, which will now distribute it or avoid it to the remaining businesses after the separation of the exam glove business. So we will see that we will see that come down. Yeah.
Okay. And you mentioned the EUR 2.8 million impairment for health, because you were expected to have it in your balance sheet by 2028. So where can I see it in this depreciation under industrial application, engineered application? Because the entire depreciation is now EUR 11.4. Can I deduct the EUR 2.8 million for the runway going forward, or what?
No, you have the discontinued operations that we show in the report on page 29, and you'll see the impairment there. It pertains to the assets being the machines as well as the building and site in Sopron. In the SPA, we committed to operate under a contract manufacturing agreement until 2028, and the purchase price formula was therefore based on 2028 carrying amounts. So basically, it's four years of depreciation that we now have to take since the purchase price formula has future values in, and our carrying amounts are higher. But we still see this as a benefit for us to close earlier and hand over the business to Harps because it gives us the opportunity to focus on our industrial business. Focus, I think, is worth a lot. Yeah.
That definitely makes sense. Yeah. The last one is for the financial result. So you reported EUR 3.6 million in the first quarter. Is that some kind of a runway you expect to have for the quarters to come?
Yeah. It's a direct function of our gross debt position. And of course, we are going to optimize that. Yeah. But it's a fair assumption that we're going to see about 12-ish for the year. Yeah. Depends on interest rates to some degree too.
Of course. Okay. Thank you for these answers. Thank you.
For any further questions, please press star and one on your telephone. Once again, for further questions, please press star and one on your telephone. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Haider for any closing remarks.
Thank you very much for listening and staying interested in Semperit. It was a solid quarter one, and we see the market, and we pursue as hard as possible on our cost position, efficiency, on our frontline gains. And therefore, we are seeing optimistic into the future. Thank you very much, and I wish you all the best.
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