U.S. Markets close in 4 hrs 26 mins

Edited Transcript of SEM.VA earnings conference call or presentation 21-Nov-19 10:00am GMT

Preliminary Q3 2019 Semperit AG Holding Earnings Call

Vienna Nov 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Semperit Ag Holding earnings conference call or presentation Thursday, November 21, 2019 at 10:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Frank Gumbinger

Semperit Aktiengesellschaft Holding - CFO & Member of Management Board

* Martin Füllenbach

Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO

================================================================================

Conference Call Participants

================================================================================

* Christian Obst

Baader-Helvea Equity Research - Analyst

* Karl Arco

* Markus Remis

Raiffeisen CENTROBANK AG, Research Division - Chief Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by. I am Hailey, your Chorus Call operator. Welcome, and thank you for joining the Semperit AG Holding conference call following the release of the preliminary short-term results reporting of the first 3 quarters 2019 of the Semperit Group. (Operator Instructions)

I would now like to turn the conference over to Martin Füllenbach. Please go ahead.

--------------------------------------------------------------------------------

Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [2]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and a very warm welcome from Vienna to present the preliminary results for the third quarter and first 9 months of 2019. With me in the call is our CFO, Frank Gumbinger, who will take you through the financials in a few minutes. And as usual, the 2 of us are available for a Q&A afterwards.

On Slide 3, let me set the scene with a short summary of our ad hoc release on November 13, which has forced us to postpone the publication of the first set of the interim group report as of September 30, 2019. The date of this publication is not yet determined. First of all, I want to emphasize that our restructuring process works well and delivers results. We have successfully done our homework in operational terms in our segments, even Sempermed has achieved the second consecutive quarter of positive EBITDA in Q3 2019. This is a great success, for which I would like to express my gratitude to the whole team.

Nevertheless, we face stronger price competition in deteriorating market environments and low plant utilization at Sempermed. The glove market is predominantly driven through a higher level of automation, with accelerated CapEx by major peers. At the same time, our order intake and booking situation have become significantly lower. Keeping up the pace with the competition would require a level of investment, which might become unreasonably high. These insights led to the current review of the recoverability of Sempermed's book volumes, which may lead to an impairment loss. Furthermore, we are examining strategic options for Sempermed.

Ladies and gentlemen, it is a matter of concern to us to keep you informed about our operational business performance based on our preliminary results, but please understand that we are currently not able to provide any further details on the size of a possible impairment for the future strategic options for Sempermed. Please also understand that we are not in the position to provide any detailed outlook for 2020.

The next slide shows highlights for the first 9 months of 2019, which reinforces that the transformation program has made a material impact, as group EBITDA is significantly above the level over the same period last year. Against the backdrop of continuing top line pressure, notably in the medical sector, group EBITDA for the first 9 months of 2019 is up by 34.5% on a reported basis and by 23.1% if adjusting for the closure of the Sempertrans site in China over the same period 2018. As I said before, we are not only encouraged by the fact that the medical sector achieved a positive operating profit for the second quarter in a row but more importantly, the EBITDA margin at 8.6% moved materially closer to our originally 10% group target.

We have made significant progress with our transformation program by reducing complexity and improving the quality of our order book. However, I want to be absolutely clear that the current economic downturn reflected in a decreasing order book will pose a major challenge for us over the next few quarters. There is high uncertainty about outlook for 2020, notably the first half, and I will elaborate on that in greater detail in my final remarks on the management agenda.

Before coming to this, let me run you through the financial highlights and some key themes in our current focus points on Slide 6. Over the first 9 months of 2019, group revenue declined by 2.7% to EUR 652 million, with a 1.5% year-on-year decrease in the industrial sector, comparing with a 4.9% decline in the medical sector. As outlined before, EBITDA was up by 23.1% against the adjusted number in 2018, and the respective group margin was 8.6%, with a clear indication that our transformation program, SemperMOVE10, delivers tangible improvements.

As the CEO of the company, I'm not only delighted that all 4 segments were profitable over the period, including Sempermed at EBITDA level, but also that EBITDA margins have increased significantly year-on-year. Over the first 9 months 2019, CapEx has been reduced to EUR 25.1 million from EUR 57.7 million over the same period last year, which implies predominantly maintenance CapEx.

In terms of our focused agenda on the back of the slowdown of the global economy, we have already faced varying degrees of decline in order books per segment and are preparing proactive measures to weather the storm. Clearly, over the short term, we continue to have limited predictability and would expect adverse effects notably over the first half of 2020. At the same time, we have initiated the new strategy project, SemperGrowth200, as announced at our half year results in August, where we define our mid- to long-term ambition for future profitable growth.

Starting the operating highlights with revenue analysis by segment in Slide 8. We faced top line pressure in all segments, notably Sempertrans and Sempermed. This was due to reduced market demand across all segments but also our own focus shift towards quality of the order book in the case of Sempertrans and the strategic change in the production portfolio of Sempermed, with a clear focus on nitrile. For the latter, we have also reduced outsourcing, which, in turn, led to less sales of traded goods. In this context, I should emphasize that the current economic downturn have predominantly an impact on volumes, and this works against the rewards from our efforts for operational improvement, efficiency enhancement and price flexibility.

Over the page, we present the quarterly EBITDA improvements in the industrial sector since Q1 2018, with a clearly positive trend despite seasonal effects in the second half of the year. As mentioned, we have adjusted EBITDA for 2018 by EUR 4 million as a result of the closure of the Sempertrans site in China. I'm particularly proud about the consistent year-on-year increase in EBITDA margins and also the fact that EBITDA in the first 9 months of 2019 have already exceeded the full year operating results for 2018.

Starting with the segmental analysis at Slide 10, revenue remained stable and EBITDA slightly improved despite reduced market demand and increasing competitive pressure, especially in Europe and China. Compared to the same period last year, the size of the order book has significantly decreased as a result of destocking and also lower demand of the customer base. Against this backdrop, we expect a clearly negative impact on sales and EBITDA over the coming quarters.

In turn, Sempertrans, on Slide 11, faced lower volumes, largely on the back of our strategic turnaround to improve operational performance and the quality of the order book. This resulted in a significant increase in EBITDA as the chart on the upper part of the slide shows, and this despite the EUR 1.3 million one-off effect from the sale of assets following the factory closure in China and income from insurance claims. At the same time, the EBITDA margin went up from 3.4% in the first 9 months 2018 to 12.3% over the same period this year. Going forward, we see the order book coming slightly under pressure due to reduced market demand, especially in the European lignite industry.

Over the page, Semperform was next to Semperflex, the other industrial segments, with a stable revenue despite reduced market demand. On the back of our initiatives to improve operational efficiency, EBITDA was up by 26.3% year-on-year and the EBITDA margin by 3.2 percentage points. Semperform is a good example for innovation, leading technology and our initial product digitization initiatives. Having said that, the economic downturn had also its first impact on the order book of Semperform, adding top line pressure at a time when we have made further progress in operation improvements.

Finally, Sempermed, on Slide 13, had lower revenue, mainly driven by price pressure and our strategic change in the production portfolio by essentially focusing on nitrile and also reduced outsourcing. The upper chart of the slide shows the impressive quarter-by-quarter EBITDA improvement since the end of 2018. This is the second consecutive quarter that we have achieved a positive EBITDA in Sempermed, thanks to ongoing operational improvements. Against this major restructuring effort, Sempermed is not immune from the increasingly difficult economic environment, and the order book has continued to decline due to inventory streamlining by key business customers. This, in combination with the fierce competition by our major peers has led us to the possible impairment review I had outlined at the beginning of my remarks.

And with this, I hand over to Frank to take us through the financials.

--------------------------------------------------------------------------------

Frank Gumbinger, Semperit Aktiengesellschaft Holding - CFO & Member of Management Board [3]

--------------------------------------------------------------------------------

Thank you, Martin, and a very warm welcome also from my side. I start the overview of top line financials and profitability on first 9 months comparison at Slide 15. As Martin has outlined before, I will focus exclusively on revenue and EBITDA numbers following the talk announcement a few days ago. As in previous quarters, please note that we compare reported numbers for the first 9 months in 2019, with adjusted numbers over the same period 2018, given the one-off effect at Sempertrans due to the closure in China last year. Despite ongoing top line pressure, we are delighted about the continuing improvement in profitability, with reported EBITDA up by 23% in 2019 against the adjusted operating result in 2018. As a result, our EBITDA margin continues to move materially closer to the 10% group target.

Turning the page, Martin had already shown this chart on revenue development by segment, and I would just would like to add 2 observations. Number one is the top line performance of our industrial sector is somewhat different to previous trends, with Semperflex and Semperform remaining stable, while Sempertrans faced more top line pressure. And secondly, in turn, Sempermed's significant revenue decline is mainly due to a combination of factors, notably reduced outsourcing and the change in our product portfolio but also a more fierce market competition.

On Slide 17, when presenting the same bridge chart for EBITDA development by segment within the industrial sector, Sempertrans and Semperform made significant improvement in absolute numbers. At the same time, Semperflex had still an impressive 22.5% EBITDA margin, despite a somewhat smaller year-on-year increase. We are very pleased about the EBITDA improvement at Sempermed, reaching a positive EUR 1.5 million over the first 9 months in 2019, compared with a negative $0.8 million over the same period last year. As already mentioned in previous quarters, we faced additional costs in Corporate Center, which continued during the third quarter. These costs relate particularly to additional efforts required for our transformation and restructuring process and also to develop our SemperGrowth200 strategy.

The next slide on Page 18 shows the consistent EBITDA improvement over the last 7 quarters, with the third quarter 2019 outperforming the best quarter in 2018, which was the second quarter last year. While there's clearly a seasonality effect over the quarter, the year-on-year improvement in EBITDA margin is very encouraging. At the same time, we are particularly pleased about the fact that the EBITDA we achieved over the first 9 months of 2019 has already exceeded the full year EBITDA in 2018.

Over the page, we show the increasing CapEx discipline we have applied and which implies, predominantly, maintenance CapEx to stay within our CapEx guidance of EUR 40 million in 2019. You will remember that we had still an element of growth investment in our more significant CapEx number in 2018 of about 50% used in both case for Semperflex and mixing as part of Sempertrans. For the first 9 months in 2019, we report an aggregated CapEx of EUR 25 million, but we'd still expect to reach roughly our target of EUR 40 million by the end of this year.

On Slide 20, we present working capital development by quarter, which has become an important strategic pillar of our financial policy framework. As you can see from the chart, our active working capital measures started to show a material impact already in 2018, with inventories being further reduced significantly. At the same time, trade receivables, trade payables are also getting further down compared to the same period last year. Overall, trade working capital as a percentage of last 12 months revenues ended at 19% in Q3 2019, which is below the 20% level for the first time. And we would aim to keep this around 20% going forward.

Finally, as some of you had requested to show how we aim to achieve a positive free cash flow by the end of 2019, we have prepared a chart on Slide 21, comparing the operating and investment cash flow for the free cash flow since 2016. Clearly, the strong improvement in operating cash flow on the back of a better operating result over the first 9 months of 2019, supported by active working capital management and the strict CapEx control have resulted in a material increase of free cash flow. From CFO perspective, cash is king, and most importantly, with the positive free cash flow generation over the last quarters, we have put the business back on a more healthy basis.

With this, I would like to hand back to Martin to finish with the management agenda.

--------------------------------------------------------------------------------

Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [4]

--------------------------------------------------------------------------------

Thank you, Frank, and let me now outline the key priorities of our management agenda for 2019 and beyond, summarized at Slide 23.

First, we are now in the second half of our SemperMOVE10 transformation program, with clear evidence that this restructuring effort has made a material impact on the industrial sector. We are fully committed to complete the implementation of the operational efficiency measures despite the global economic downturn.

Second, challenge of the declining market requires proactive measures and structural adjustments in sales, procurement, inventory management and other areas for which our transformation and restructuring program came very timely. While we feel better prepared to deal with the economic downturn, there is still much uncertainty about the scope and timing of the impact. We expect the economic downturn to have a negative impact on the results of next year, in particular, in the first half.

Third, the completion of our strategic transformation plan raises a number of structural issues, which we are trying to address through our new SemperGrowth200 strategy. As we had already announced in August, we will update the market about details in due course.

Finally, the medical sector continues to operate in a fast-changing and fiercely competitive environment against the backdrop of our competitive position that is deteriorating relatively and the high level of investment needs. We are examining strategic options for Sempermed. As I said at the beginning, we would like to ask for your understanding that we can't discuss any further details at this stage.

And with this in mind, we are now at your disposal for questions-and-answer session.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And the first question comes from the line of Markus Remis of RCB.

--------------------------------------------------------------------------------

Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Chief Analyst [2]

--------------------------------------------------------------------------------

First, I would like to start with the remark regarding the presentation of the results because you stripped out the negative effects of last year, the closure costs, but you do not adjust for a positive one-off gains in this year. So I think it would be consistent to strip that out from the earnings, but that's just my personal view.

My first question, actually, of course, relates to Sempermed. Can you maybe help us to better understand kind of the framework? You now show an improving earnings trend in the last couple of quarters, but apparently, you expect this major deterioration. So how should we think about the recent earnings improvement? Was that, to some extent, inflated by lower raw material prices, which might not be sticky and have to be passed on now to the customers? So what's actually your kind of more concrete expectation? And is it only the kind of the competitive pressure? Are you losing customers? Anything on that would be very helpful.

--------------------------------------------------------------------------------

Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [3]

--------------------------------------------------------------------------------

So if I get your question right, you would like to understand where the operational improvement in the mid-sector over the last quarter is coming from. And if that is the question, the answer is it's based on purely operational improvement in doing gloves, which is all about machine output, quality cost, raw material prices to a certain extent and you name it.

--------------------------------------------------------------------------------

Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Chief Analyst [4]

--------------------------------------------------------------------------------

Yes. My -- I was actually trying to get my head around the trigger now for this looming impairment. If you have lost any customer contracts, if it's solely the expectation of mounting price pressure if -- because at least from what we see here, there's actually a certain upward trend to be observed. So what triggers now this expectation of sharp deterioration? So is it solely competitive pressure? Or is it also customer losses? Or...

--------------------------------------------------------------------------------

Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [5]

--------------------------------------------------------------------------------

Okay. What we do see is in a still -- I mean in a difficult market environment, a stronger price competition, which is driven by an economy of scale game, which is very much based on automate -- the degree of automation that you can apply to your manufacturing processes, which then ultimately translates into an increasingly high demand for CapEx in your factories, which also ultimately, will translate into overcapacity in the next years, which will then again translate into increasing price competition. So I think you've got all the elements now that I tried to put into one sentence here.

--------------------------------------------------------------------------------

Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Chief Analyst [6]

--------------------------------------------------------------------------------

Okay. And just to have a clean base in terms of the potential, you have about EUR 55 million of PPE left on the balance sheet. And can you update us on the working capital that relate -- or attached to Sempermed at the end of, I don't know, first half or third quarter?

--------------------------------------------------------------------------------

Frank Gumbinger, Semperit Aktiengesellschaft Holding - CFO & Member of Management Board [7]

--------------------------------------------------------------------------------

Yes. Maybe I can give you a -- I can jump in and give you an update. Based on our figures, it was preliminary figures, end of September, we had a current book value of Sempermed of around EUR 126 million. Thereof, approximately EUR 60 million is working capital, so 59-point-something, above this, then PPE is EUR 63 million. Yes.

--------------------------------------------------------------------------------

Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Chief Analyst [8]

--------------------------------------------------------------------------------

Okay. Very helpful. And I'd also like to understand, you're now guiding for a deterioration of Sempermed but also for the Industrial business. At the same time, you're keeping up the 10% margin target, which is kind of the run rate at the end of next year. If you could help us understand how that kind of -- how that comes together? You've lacked proactive measures. Should we interpret this as kind of an intensifying of the cost-cutting/restructuring measures?

--------------------------------------------------------------------------------

Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [9]

--------------------------------------------------------------------------------

First, we need to understand the impact of the recession and especially get a better understanding how long our businesses will be impacted, which is not clear yet because we get sometimes very conflicting signals throughout the business units on the economic outlook. And secondly, don't forget the 10% profitability target that we gave out in the market is all after 2020. So we're still on track. We're doing our homework here.

--------------------------------------------------------------------------------

Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Chief Analyst [10]

--------------------------------------------------------------------------------

Okay. Last question, please. On the order intake decline you flagged for the Industrial segment, can you give us some sort of indication about the magnitude? I'm talking -- are we talking about single-digits or even double-digit declines in the order intake on a year-on-year basis? So some granularity on the segments would be very helpful.

--------------------------------------------------------------------------------

Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [11]

--------------------------------------------------------------------------------

Yes. On Trans, it's difficult because the nature of the business does not follow a clear and linear logic. On Flex, currently, we do see a 25% decline in order intake. On Form, it is more of a 5% decline. But still again, we're following up this for the last months. And it is not yet a clear trend that I could easily extrapolate to give you a precise outlook for the next quarters.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

The next question comes from the line of Karl Arco of Liechtensteinische Landesbank.

--------------------------------------------------------------------------------

Karl Arco, [13]

--------------------------------------------------------------------------------

First of all, I'd like to congratulate to the achievements you made, which I think they are actually really substantial. So therefore, I actually do not understand and cannot follow why you have such a gloomy negative outlook with a lot of imprecise numbers on very important things. Obviously, we do -- nothing is worse in an outlook than uncertainty, I would say. And several things we do understand definitely that you cannot tell us, numbers. You explained now a little to the order intake and in what sort of sizes you expect the downturn. And on the impairment, you still did not give us a range of what could be expected. What is that? EUR 20 million, EUR 50 million, EUR 100 million? As I said, I mean this is -- the uncertainty is the worst thing one can do, and I do not understand why one states such uncertain things.

But to come to a precise question is -- would be on the overhead. I'm wondering where do -- does the increase from the overheads come from. And is that to be going forward? Or will that decrease again? Where does it come from? That would be my main question. The rest has been answered before.

--------------------------------------------------------------------------------

Frank Gumbinger, Semperit Aktiengesellschaft Holding - CFO & Member of Management Board [14]

--------------------------------------------------------------------------------

Okay. I get your question. In respect of overhead, it's mainly related to the additional costs on a corporate level. These additional costs on corporate level, as I outlined in my speech, is mainly coming from specific projects of the transformation process and restructuring process as well as in order to develop the strategy 2024, or SemperGrowth200. So based on this, it's more or less one-off cost, but to a certain extent, we always see some one-off cost. Our running cost on a corporate level are around EUR 5 million. So based on a -- yes, normal running cost business should be around EUR 5 million per quarter.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

The next question comes from the line of [Sven Zara] of [Kepler Cheuvreux].

--------------------------------------------------------------------------------

Unidentified Analyst, [16]

--------------------------------------------------------------------------------

A quick question on the lower book order. On Slide 6, you state that there are proactive measures taken against this, to counter this. Do you refer -- or are these measures -- do you refer with these -- the operational improvements to counter the lower book order? Or are you taking proactive measures to actually increase the book order?

--------------------------------------------------------------------------------

Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [17]

--------------------------------------------------------------------------------

Yes. Sorry. Just looking at the slide that you were referring to. I think we have to look into both top line and bottom line here when you speak about proactive measures. Just a quick note on top line. We've just installed, as we call it, a customer excellence center to increase customer intimacy and to look for cross-selling opportunities and others, how to keep -- I mean how to keep the top line, hopefully, growing. And in terms of bottom line, obviously, this is a meaningful process. We have taken out subcontracted workers. We have already reduced the number of shifts on different sites. I mean it's the typical skill set of modern management that you apply to reduce some time to declining market demand.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

(Operator Instructions) The next question comes from the line of Christian Obst of Baader Bank.

--------------------------------------------------------------------------------

Christian Obst, Baader-Helvea Equity Research - Analyst [19]

--------------------------------------------------------------------------------

I have one question left. This is concerning the cash flow. So you reported quite impressive operating cash flow development. You mentioned the working capital improvement there. And if you are -- and I understand it right, there is no more improvement to be expected as you guided for the 20% line going forward. Can you give us an idea what could be the operational cash flow per quarter now expecting some kind of a downturn in profitability? So could it be around EUR 20 million, something like that? And what is your CapEx planning for those for the next year?

--------------------------------------------------------------------------------

Frank Gumbinger, Semperit Aktiengesellschaft Holding - CFO & Member of Management Board [20]

--------------------------------------------------------------------------------

No. Actually, not ought to comment on next year, it's too early, as we anyway already mentioned at the beginning. But we don't comment further on EBITDA for next year. It's also then based on this not possible to comment on free cash flow for next year.

--------------------------------------------------------------------------------

Christian Obst, Baader-Helvea Equity Research - Analyst [21]

--------------------------------------------------------------------------------

Yes. But you have -- so working capital, you gave a target of 20% approximately. And in this line, you like to stabilize it there. And of course, you have some kind of an indication for CapEx, right?

--------------------------------------------------------------------------------

Frank Gumbinger, Semperit Aktiengesellschaft Holding - CFO & Member of Management Board [22]

--------------------------------------------------------------------------------

About CapEx guidance, we will give next year. Not yet as our budget for next year is not yet approved. It's too early to comment on that. And our working capital guidance is, as I mentioned before, between the 20% and 25%. And as we are anyway now below the 20%, we aim to go for the 20% or it could also be slightly above for 2020.

--------------------------------------------------------------------------------

Christian Obst, Baader-Helvea Equity Research - Analyst [23]

--------------------------------------------------------------------------------

Was there any special item in the now EUR 83 million operating cash flow?

--------------------------------------------------------------------------------

Frank Gumbinger, Semperit Aktiengesellschaft Holding - CFO & Member of Management Board [24]

--------------------------------------------------------------------------------

Any special item in the free cash flow?

--------------------------------------------------------------------------------

Christian Obst, Baader-Helvea Equity Research - Analyst [25]

--------------------------------------------------------------------------------

Yes. In the operating cash flow, some divestments of something or whatsoever? Or is it purely really out of the operation?

--------------------------------------------------------------------------------

Frank Gumbinger, Semperit Aktiengesellschaft Holding - CFO & Member of Management Board [26]

--------------------------------------------------------------------------------

It's mainly out of the operations. So we have no significant in divestments or something like this. The main -- one main driver is on the one side, we significantly improved our EBITDA, our operational result. This is one driver. And the second one is we had improvements in the working capital area in support of this. And last but not least and very important, and please, if you look into that, we had in 2018 CapEx already of EUR 58 million. And then in 2019, we are now at end of Q3 at EUR 25 million, which is a significant lower CapEx outflow of more than EUR 30 million, which heavily influenced the positive free cash flow trend.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

We have a follow-up question from Markus Remis of RCB.

--------------------------------------------------------------------------------

Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Chief Analyst [28]

--------------------------------------------------------------------------------

A question coming back to Med and the potential write-down. Would it be fair to assume that the impairment threat is rather related to PPE and not to the inventory and receivables?

--------------------------------------------------------------------------------

Frank Gumbinger, Semperit Aktiengesellschaft Holding - CFO & Member of Management Board [29]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Chief Analyst [30]

--------------------------------------------------------------------------------

Okay. And then on Semperform, a question to the source of the weakness you're currently seeing, because my feeling is construction industry overall is still in a very healthy state. So is that related to some specific industries? Is it country specific? Or do you see the weakness in Semperform rather across the board?

--------------------------------------------------------------------------------

Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [31]

--------------------------------------------------------------------------------

Semperform is predominantly selling in Europe. First, we do see European weakness -- starting European weakness in the construction market. And this is basically a consequence of the high yellow good exposure that we have in Semperflex. Now the first thing that always happens is that people don't -- I mean they stop basically buying excavators. And then in the second wave, the construction activities also slow down. And that's what we see predominantly in the profile business, where we have -- where we do see reduced order intakes.

--------------------------------------------------------------------------------

Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Chief Analyst [32]

--------------------------------------------------------------------------------

Okay. Okay. Yes. Can I just follow-up? There was one question that -- I'm just looking on my notes. Yes. On Sempermed, sorry I missed one. You referred to a lower level of traded goods. I understand that traded goods business is margin dilutive, but it still should be earnings accretive. So can you elaborate on the considerations why you -- why you're reducing this business? Is it just to get up the share of own products sold?

--------------------------------------------------------------------------------

Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [33]

--------------------------------------------------------------------------------

The idea behind as we, I think, already expressed in some of the calls before is we reduced the traded volume business and replaced by own manufactured gloves because there, we have a higher margin exposure.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

And there are no further questions at this time. I hand back to Martin Füllenbach for closing comments.

--------------------------------------------------------------------------------

Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [35]

--------------------------------------------------------------------------------

Well, if there's no other questions, thank you very much for joining this call. And we're going to speak again on March 20, 2020 for our full year number. Thank you very much. Have a good weekend. Bye-bye.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.