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Edited Transcript of SMPV.VI earnings conference call or presentation 20-May-20 1:00pm GMT

Q1 2020 Semperit AG Holding Earnings Call

Vienna Jun 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Semperit AG Holding earnings conference call or presentation Wednesday, May 20, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Martin Füllenbach

Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO

* Petra Preining

Semperit Aktiengesellschaft Holding - Interim CFO, Member of the Management Board & Member of Supervisory Board

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Conference Call Participants

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* Christian Obst

Baader-Helvea Equity Research - Analyst

* Markus Remis

Raiffeisen CENTROBANK AG, Research Division - Financial Analyst

* Richard Schramm

HSBC, Research Division - Analyst

* Sven Sauer

Kepler Cheuvreux, Research Division - Equity Research Analyst

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Presentation

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [1]

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Good afternoon, ladies and gentlemen, and a very warm welcome from Vienna to present the results for the first quarter of 2020 for Semperit Group, a quarter which has been unprecedented by any historical comparison due to the corona pandemic. Our interim CFO, Petra Preining, will present the financials in a few minutes.

But first of all, let me emphasize that these are the best ever first quarter results we have achieved since 2016. The fact that we did it against the backdrop of the massive external shock from the corona pandemic and the given recessionary environment, fills me with a lot of pride. So I want to thank all our employees and stakeholders for their personal commitments and restless support in recent weeks. This is truly a great success.

As the CEO of the company, I almost feel vindicated that we had started with a deep and thorough transformation process at the beginning of 2018, and the numbers we present today speak for themselves. This restructuring effort in recent years, helped not only to improve operational efficiency, but we are now in a much better position to weather the storm of the pandemic that we are currently facing.

Slide 3. Let me start with a summary of the key financials, which, indeed, are the true highlights for the first quarter. As we had indicated, since August 2019, we faced top line pressure in the Industrial Sector, due to the global economic slowdown, but achieved higher production volumes in the Medical Sector.

In terms of operating earnings, however, I'm very pleased to report that our restructuring process is paying off, as we managed a further improvement both at EBITDA and EBIT level and as against the backdrop of the negative impact of the economic cycle we had flagged to use since the second half of 2019. We continue to see a material contribution from the transformation and restructuring process, which led to a further increase in profitability. EBITDA was up by 2.3% year-on-year and EBIT up by almost 25%. Petra will say a few words on the impact of the negative financial results, but let me emphasize, at this stage the other major highlights of the quarter, which is a further improvement of our free cash flow, up by EUR 4.7 million or 25.3% year-on-year.

In critical times like these, we continue to focus on cash, but also cost containment with CapEx amounting to EUR 6.8 million in the first quarter. Please note that during the same period in 2019, we still had major CapEx commitments for Sempermed and Semperflex, but keep closely monitoring the situation and expect CapEx to remain below EUR 40 million in 2020.

Over the page, I want to spend a few minutes to summarize the immediate impact of the corona crisis on our business, what measures we took and where we see customer behavior developing.

As for any business, the health and safety of our people is key priority, and we had reduced physical contact to a minimum right away. In this respect, it helped that we had closed our Chinese factory in February, and we could then apply our experience across different geographies in March. I am pleased to report that no Semperit employee fell critically ill from the coronavirus.

In terms of procurement, we faced no major bottlenecks for our essential raw materials. As to supply chain disruptions, we immediately identified alternative suppliers, but might face longer delivery times going forward.

In terms of production and business continuity, we were in the fortunate situation not to face any major restrictions in our factories, and had only a slight slowdown in production. In the meantime, our Chinese factory is back to full capacity, and we are in the process of ramping up the production in India.

Finally, as to customer behavior, we had a short-term positive corona effect, as customers were restocking in the Industrial Sector, and demand for our medical gloves was increasing significantly in the Medical Sector. However, we expect the material impact of the global economic recession on the Industrial Sector due to reduced demand in the second half of 2020. From today's perspective, we see very different dynamics for our industrial segments and Sempermed.

As to the former, while there is still some lack of visibility at Sempertrans and Semperform, we can already see reduced demand for yellow products at Semperflex. In addition, the construction industry sentiment is at a lower level, which has a direct impact on Semperseal. In sharp contrast, as I had highlighted before, there is currently a huge demand for our eugenic (sic) [hygienic] equipment in Sempermed, which has continued strongly in April and May.

Before going into further operational details, let me briefly update you at Slide 5, how we see our current business operation at group level and how we plan to weather the corona storm.

Right at the beginning, I emphasized that through our restructuring measures, we had achieved a significant improvement in operational efficiency, supported by lean production, higher product quality and technological innovation, which very much helped to get prepared for the economic downturn we faced since the second half of 2019. Recent weeks have forced us into daily crisis management, as any other business, but our new platform for supply chain, the sourcing of raw materials and the sales network provided much higher flexibility and adaptability. So we can truly state today that our previously initiated restructuring effort is less of a temporary, but more of a structural long-term nature.

During the corona crisis, management was in the driving seat right at the beginning and took decisive and immediate action. We implemented short-term work for 140 employees in Austria, integrate on similar models for more flexible work in our production facilities in Poland, the Czech Republic, France, U.K. and Germany. We took other countermeasures, not only for working from home and IT setup, but also procurement, supply chain and sales, which was individually applied by segment and geography to a varying degree. This all helps to keep our production at almost full utilization of available capacity during the first quarter.

Finally, with regards to management's priority and special attention, I had already outlined that the health and safety of our employees remains key. More from a stakeholder perspective, customer intimacy remained an absolute imperative to continue operating with reliable business relationships. Special management attention receives the Industrial Sector and how best to get prepared for the expected negative impact in the second half of 2020. At the same time, and Petra will say a few words on this later, we made absolutely sure that we can keep a stable financial framework and continued focusing on cash generation. We feel that management leadership and clear internal communication is crucial in critical situations like these.

As an Austrian company, we fulfill our responsibility and support the country and its government with our medical gloves. As the focus is currently on supply security for Austria, we are setting new priorities. For these reasons, the implementation of the strategic landmark decision to separate from the medical business will be delayed, in any case. But there is one I want to make absolutely clear, the decision to separate from Sempermed is still valid.

Starting now, with a more detailed analysis of operational performance at Slide 7, we show in the chart on the left-hand side the impact of top line and market pressure on group revenues in Q1 2020 compared with the same period last year.

The strong performance of Sempermed, mostly due to operational improvements and higher production volumes, helped to offset the heavily reduced demand in our industrial segments. As of end March 2020, the latter had faced only a limited impact from the corona crisis. However, against the massive economic headwind we had faced in recent months, operating profit improved for the ninth consecutive quarter at EBITDA level. The chart on the right shows since Q1 2017, with the EBITDA margin improving from 4.2% to 8.5% over that period. More importantly, EBIT increased by almost 25% year-on-year and EBIT margin was at a very encouraging 4.9% at Q1 2020.

Over the page, at Slide 8, we present year-on-year revenue development by segment, with a clear difference between the Industrial and the Medical Sector. Please note that from this quarter, we show for the first time the relevant financials for Semperseal, with its focus on profiles and sheeting. I will provide more details when analyzing each segment in a minute, but would like to highlight here only that the significant decline in revenues at Semperflex is partly due to the closure of our Chinese plant in February with demand further falling in March. This was the first clear sign of the severe corona impact as, in sharp contrast, we also saw, from a very positive perspective, at Sempermed.

When turning the page and narrowing our focus on quarterly EBITDA development at the core Industrial Sector, we faced a sharp year-on-year decline, in absolute terms, but this was against a strong comparison in Q1 2019. At the same time, we managed to protect the EBITDA margin at a very respective level, which is clear evidence of our restructuring measures having a material impact in the Industrial Sector despite the significant economic downturn in recent months.

Looking now at each segment in greater detail and starting with Semperflex at Slide 10. I had already mentioned the closure of our Chinese plant, but this was in addition to reduced market demand we already faced in the prior period. This top line decline had a direct impact on EBITDA, which was down by EUR 4.6 million or 33% year-on-year. In previous quarters, we had already flagged that the size of the order book had decreased significantly. But on the occasion, there was a positive corona effect due to restocking.

The other encouraging observation is that our production in China fully recovered after the lockdown in February, and its daily output reached by now an all-time high.

With regards to Sempertrans, over the page, I should note that this segment had a positive nonoperational effect of EUR 1.3 million in Q1 2019 due to the sale of assets of our closed factory in China, which makes a year-on-year comparison of EBITDA levels somewhat more difficult. We have shown this in different colors on the upper chart at Slide 11. Hence, both revenues and EBITDA remained fairly stable when adjusted for the nonoperational perceived in Q1 2019. While the order book was slightly down year-on-year, there was a strong improvement compared with Q4 2019. Even more encouraging was that the cost of quality has significantly improved, which is another evidence of our restructuring measures.

At Slide 12, we look at the first set of quarterly results for Semperseal, where, for comparison, we have also provided pro forma numbers for the quarterly development in 2019.

Top line pressure in this new industrial segment was a combination of reduced market demand and seasonality factors, despite some restocking. The 7.7% year-on-year decline in revenues fed directly through to EBITDA, although the strong recovery between Q4 2019 and Q1 2019 is remarkable, with the EBITDA margin being only slightly down year-on-year.

The order book is below its Q1 2019 level as a result of the economic downturn, but I should emphasize that our focus remains on North America, despite some of the next steps being delayed due to the current lockdown in the U.S. Overall, as the first management assessment of Semperseal, all operational KPIs are heading north.

As to revenue in Semperform on Slide 13, I should stress that it had faced already reduced economic activity in Q4 2019, largely affecting the order intake of engineered solutions. As of today, however, the order book is at a solid level, again, with no major corona impact year-to-date.

Looking back to the first 3 months in 2020, revenue was down by 11.3% year-on-year, which had a direct impact on EBITDA being lower by EUR 0.5 million or 12.6%. However, as we had also seen at Semperseal, revenue in Semperform managed to keep its EBITDA margin stable year-on-year, with a particularly strong rebound between Q4 2019 and Q1 2020. Another positive observation is the fact that our handrail factory in Shanghai had a remarkable ramp-up after its closure was extended in February.

Finally, Sempermed has improved its performance, which is, first and foremost, a result of the successful restructuring and turnaround in 2019. The 8.4% year-on-year increase in revenues was underpinned by rising demand with a very high production output. Please note that the output of exam gloves in Q1 2020 was more than 20% higher year-on-year. This largely explains the strong recovery in EBITDA, as you can nicely see at the upper chart of Slide 14. But I should emphasize that this significant margin improvement is now being supported by high operational efficiencies. Going forward, our order book has improved dramatically, with the order intake being currently at a historical record level.

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

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Petra Preining, Semperit Aktiengesellschaft Holding - Interim CFO, Member of the Management Board & Member of Supervisory Board [2]

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Thank you, Martin, and a very warm welcome from my side as well. I'm delighted to present some outstanding results for this quarter, which is the best first quarter performance since 2016.

As Martin said, the numbers speak for themselves. I couldn't have hoped for a better start as the new interim CFO of Semperit. For this, also on my behalf, a very special thank you to all our employees for your great endurance and support over the last few weeks.

Let me start with Slide 16, with a short overview of the key focus points of our financial policy to weather this corona storm. I should emphasize that management has been in the driving seat since day 1 of the corona outbreak, and we can now truly say that we are in a solid financial position to cope with the volatilities and further disruptions we might expect in the coming months.

I will go through each of those themes in the next few minutes, but let me highlight here at this stage that our key priorities remain the focus on cash generation, a strong balance sheet and liquidity. And to the latter, the team has done an incredible job in setting up a more flexible, undrawn credit facility, while at the same time, further reducing net debt and increasing cash and cash equivalents. I will come back to that in my final slide.

Over the page, we summarized the key financials for the first quarter 2020 in comparison with the same period last year. Martin has already commented on top line and market development, but I would like to draw your attention for a moment further down the P&L. The negative financial result largely impacted earnings before tax. The main reason was the negative other financial results as we faced an adverse FX effect when the drop of the exchange rate of Czech koruna and Polish zloty caused negative noncash valuation effects on long-term intercompany financing.

Taxes increased by 18% year-on-year in nominal terms. This is basically due to a EUR 1 million impairment of deferred tax assets, resulting from the increased uncertainty in the corona crisis. As a result, earnings after tax ended up negative, and earnings per share came in at minus EUR 0.17 compared with EUR 0.07 per share in Q1 2019.

Given limited visibility during the current corona pandemic, it's very difficult to provide a meaningful outlook. However, we remain committed to protect and even improve margins while, at the same time, further reducing costs.

Group EBITDA improvement was achieved for the ninth consecutive quarter, as shown on Slide 18, and this despite severe economic headwinds since the second half of 2019. Please bear also in mind that we compare Q1 2020 results with an economically much stronger Q1 2019.

As Martin had already observed for segmental review developments, there is also a clear discrepancy between the Industrial and the Medical Sector's operating EBITDA level. However, in this case, the strong EBITDA improvement, mainly based on operational performance at Sempermed combined with a EUR 1.6 million uptick at corporate, offset the aggregated decline by all 4 segments in Industrial Sector.

In terms of operating EBITDA margins, Semperflex still managed a very respectable 19.9% margin despite an absolute decline by EUR 4.6 million. Another double-digit operating margins in Semperseal and Semperform, combined with a strong turnaround in Sempermed, helped to improve group operating margins to 8.5%.

CapEx development, as shown on Slide 19, is one of the financial tools where we can have a direct impact on strengthening liquidity against all the external market and pandemic shock we have faced in the recent weeks. Please note that this significantly higher CapEx number for Q1 2019 was due to CapEx phasing from 2018 into 2019 and remaining CapEx commitments for the ongoing restructuring effort at Sempermed and Semperflex in those days. In turn, for Q1 2020, we have kept CapEx for all 5 segments constant compared with Q4 2019. And from today's perspective, would expect to remain below EUR 40 million by the end of 2020.

Please note that the current EUR 7 million is not necessarily a quarterly run rate, but we keep closely monitoring CapEx requirements with the broader economic and business environment, clearly without endangering further restructuring and/or future growth.

Turning the page. Working capital management is another steering tool where we, as a management, can proactively intervene and help to improve our free cash flow generation. Against the backdrop of the first corona impact and high production rates, our procurement department did a great job in securing raw materials in times of distressed logistics and supply chains. Therefore, inventories are at an increased level. In turn, while trade receivable increased due to seasonality, we also managed trade payables in [greater minuta] as a result of which working capital as a percent of last 12 month's revenues further declined to 18% at Q1 2020.

The combined effort in improving results, keeping CapEx at its maintenance level and actively managing working capital resulted in a further improvement of free cash flow generation, as shown on Slide 21. Compared with previous quarters, operating cash flow came in at a strong EUR 30 million, which largely helped to get free cash flow up to EUR 23.3 million as at the same time, investment cash flow was capped at EUR 6.7 million.

Given our consistent focus on cash, as the CFO, I'm particularly proud of the fact that we managed not only to reverse previous trends of negative free cash flow, but built a solid cash base to face the current situation. This ambition is further supported when presenting balance sheet details on Slide 22.

The numbers on this slide speak for themselves, but let me just briefly highlight the following developments. Cash and cash equivalents increased by 7.2% to EUR 152 million since end December 2019. We managed to keep our financial liabilities low, and at the same time, secured additional liquidity with our banks by agreeing on a more flexible EUR 75 million undrawn credit facility.

Given our strong cash position, we further reduced net debt by EUR 19.2 million since 31st December 2019, to EUR 54.3 million as of end of March 2020. This lowered our gearing level to 0.8x net debt to EBITDA, which is well below our covenant. In addition, we have still the option to draw the final EUR 20 million from our hybrid capital by the end of 2020, and hence feel in a comfortable financial position at the time of global economic recession.

With this, I've come to an end of my part of the presentation and hand back to Martin for final remarks.

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

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Thank you, Petra. And let me complete our presentation with the leadership and action plan for 2020 at Slide 24. Ladies and gentlemen, as we face uncharted territory due to the corona crisis, in the short term, management needs to apply a very fast, decisive and hands-on approach. Leadership in this daily crisis management, however, should be based on a clear mid- and long-term strategic outlook, which is currently impacted by economic, social and even epidemiological uncertainty.

So let me summarize some of our key convictions, observations and action plans for 2020 and possibly beyond. First, and this is very important, through the recent corona crisis, our transformation process has not only been continued but accelerated. We have applied a very customized and flexible approach for specific Sempermed markets, we reset the cost base and we expect the pandemic to last longer and ultimately keep the management focus on cash generation. In times like these, the latter is crucial to keep our strong balance sheet and preserve liquidity.

Second, as we have repeatedly highlighted today, we expect and get prepared for a material top line and margin pressure in the second half of 2020. To address these multiple challenges, we keep our management focus on cost containment, customer intimacy and the flexible adoption of the organizational and financial structure. And what I should mention here is that despite the headwind we are facing, there is also an upside potential that might arise from further positive market dynamics for Sempermed, especially if the market price levels keep on rising.

Third, and looking ahead over the midterm and long term, we continue with implementing our industrial rubber strategy as announced in late January 2020, and reiterate its main pillars. First, the separation from the medical business despite the current corona effect; second, regional diversification with a stronger focus on North America and industries; third, focus on customer intimacy, something which became particularly clear in recent weeks; and number four, digitization, for which the current corona crisis has also provided ample evidence for the need to step up and accelerate.

In the context of our leadership and action plan 2020, it is important to emphasize that we remain not only committed to our new industrial rubber strategy but that we feel vindicated through the latest events.

And with this, we have come to the end of our presentation. And Petra and I are now available for any questions you might have.

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Questions and Answers

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Operator [1]

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

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

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Congrats on the quarter. Our first question relates to the May disposals. You've made it very clear that this is not jeopardized. But can you help us to understand what would be the yardsticks to watch out for until the disposal becomes more -- yes, becomes closer to the conclusion? What's like the -- is it riding the wave of the corona pandemic until this pent-up demand cools off again? Or how should we think about that?

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

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Well, thank you for the question. Let's be clear. As you said -- as you rightly said, we're in the middle of a crisis here. We, basically, stick to our promises and our responsibility for Austria. We've put it, basically, for the time being, on ice. We're in the middle of a process. And as soon as it will become legally required, we will then inform you accordingly. But at this point, I can't basically do any further comments.

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

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Okay. But I think this is a very critical question for investors and analysts alike. So -- okay. But I'll take the point here.

Then coming on -- yes, staying at May, please. If you could maybe comment on the uplift of prices. I'm not talking about Semperit specifically, but referring to your remarks on the market prices. Can you help us understand how pronounced the uplift was versus the pre-corona level?

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

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Yes. First, important to highlight, we're not the price leader here. But obviously, we are following price developments in the market. And what we have seen, ever since the crisis started is basically an uplift of 10% to 15%.

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

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It's very clear. Is there -- and now coming to your Q1 performance in May. Did you kind of benefit already, particularly from pricing in Q1? Or was it rather a volume effect?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [7]

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No. In Q1, there is no pricing-related impact, but it is a volume. To a certain small extent, a volume impact. And that is the most important thing that we tried to highlight, the strong performance improvement. Don't forget, we started a massive restructuring of this business 2 years ago. And now basically, we see the results coming in. Operational, I mean, the OEE numbers are up, the first time right numbers are up, so basically, it pays back in operational performance.

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

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Okay. That's already -- it's the prelude to my next question. What has changed operationally? Because, I mean, you've been struggling for quite a while now. And I think the decision to dispose of Sempermed was also kind of, I should say, reflection of the struggles you had to come up with, I should say, yes, KPIs that would, on a sustainable basis, return profit. So what has changed within the last, I don't know, 2, 3 quarters? Why you are now kind of returning decent profits?

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

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Well, let's be first clear on the decision that we took. The decision taken, the strategic landmark decision taken, is not based on operational performance over the last couple of months or year. It is a strategic decision based on market developments, competition, pricing, overcapacity and you name it. That's the one thing.

The second thing, what we currently see is the payback of bringing the right managers and applying the right processes, which then basically translates into higher OEE, higher first time right, less quality cost, just higher output.

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

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Okay. So it's the operating leverage that's kicking in, actually. Okay.

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

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Right.

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Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [12]

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And okay, that makes sense. And yes, one more question on the industry part of the business because you explicitly referred to the second half for which you expect revenues to plunge. What about the second quarter? Because most companies operating in an Industrial Sectors, they already -- there are indications that Q2 will be the trough, the quarter most impacted. Why is it delayed in your case? Is it still because of this restocking demand? And related to that, where would you see stock levels compared to normal economic times?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [13]

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Well, obviously, we don't comment on the second quarter in the Q1 call. But what I can tell you is that the order book for the second quarter is good. It's up. But given the uncertainty that we've tried to highlight many times during the call, for the second half of the year with short lead times, don't forget that in some of our businesses, that's where we currently see -- where we have to be very careful looking into -- let's put it that way, looking into the second half of the year.

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Operator [14]

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

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Christian Obst, Baader-Helvea Equity Research - Analyst [15]

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First, coming back to Sempermed, of course. Can you give us some kind of an indication how much of the volume uplift you can achieve in Malaysia in this year compared to last year? And how much your trading business volume-wise will change 2020 versus last year? Maybe if you can give some kind of an indication here.

And I have also to come back to the order intake in the Industrial Sector. So you say order book is up going into the second quarter. But from the indication and from the business, of course, what -- or how would you say the order intake will be affected within the 4 business areas? So most by Semperflex, I would suppose, and maybe the last one will be Semperform or in between? Can you give us some kind of a range, who will be affected most or do you expect the most effect from a decline in order intake? And who will be last affected?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [16]

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Well, there was quite a number of questions.

Let me start with Sempermed. I think compared to last year, we have an uplift below 10% in the production volumes. But I think the most important thing is here the first time right number. We currently manufacture on a level of up to 28 million gloves in Malaysia per day, and that is basically the maximum output, close to the maximum output that we can deliver from the factory.

In terms of the share between traded goods and own production volumes, I don't want to disclose numbers here in terms of gloves. But obviously, we still follow our strategy by consequently shifting from traded volumes to own production volumes.

Question #2. In this call please understand that we're speaking here about the Q1 results. And I don't want to -- and I don't want to go into the impact on our segments for the next quarters. But what I can give to you is basically how we see the markets currently. Obviously, the biggest uncertainty I sense in the mining industry. Mining clearly shows -- and I'm sure you are smart analysts, you have seen all these data. If you go into the CapEx numbers of the big mining OEMs and mining operators, you see that there is a strong decline, which also basically could impact us at a certain moment in time. And what we see already now is first tenders being postponed from 1 quarter to another. The discussions with the customers need more time. The second impact we see currently, which is already visible, is obviously in Semperseal as this is strongly connected to the construction market, and construction markets also started to decline strongly.

In Semperform, we expect an impact in the second half of the year. But as of today, it is not yet visible to the same extent or to the same threat level as we would possibly see in mining.

In Semperflex, with the high exposure, especially to the yellow good markets, basically started already the decline last year with the upcoming recession and is now on a level -- or let's put it that way. I think we understand the Semperflex market best. That is where we have the best understanding of the customers developing into the second half of the year. Yes. That's what I can -- that's what I would like to share with you at this moment in time.

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Christian Obst, Baader-Helvea Equity Research - Analyst [17]

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Okay. And I have another question concerning the Sempermed process. Is the entire selling process or the divestment process, have you stopped everything? Or you are still talking to possible buyers and preparing the separation of Sempermed? So where are we in the process there? Can you give us some kind of idea there?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [18]

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Again, we are in a process, but please understand that I can't disclose details of this process with anyone at this moment in time. And again, the highest priority is given right now to supplying, especially Austria, with the gloves needed and it's basically contributing to solving the pandemic.

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Operator [19]

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The next question comes from the line of Richard Schramm, HSBC.

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Richard Schramm, HSBC, Research Division - Analyst [20]

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I'm just trying to cover all these numbers together you mentioned in respect of Sempermed. Production, I'm not sure if I understood it correctly, so please allow me to repeat. I think you said that volume was up 20% in Q1. Was this correct? The volume [cost]?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [21]

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No, I didn't say that, sorry.

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Richard Schramm, HSBC, Research Division - Analyst [22]

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No? Okay. But then production was up 10% around quarter-on-quarter, right?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [23]

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No, what I said is that the production volume coming out of the factory in Malaysia compared to last year was up by 10%, up to 10%. This goes back to the number of gloves that we basically manufacture. That was a purely operationally question that I got. And that's the way I tried to explain it.

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Richard Schramm, HSBC, Research Division - Analyst [24]

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Okay. So you stick to the statement that this plus 8% in sales you have seen was purely a volume effect and has nothing to do with the price movements, right?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [25]

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That is right.

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Richard Schramm, HSBC, Research Division - Analyst [26]

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Okay. Then concerning Semperflex, where you just said that you have the best insight into this market and obviously, best visibility of all segments here in the industrial area. We have seen now a constant decline quarter-on-quarter since Q1 last year. And from the figures, are we now here at kind of low point in the inventory cycle? Or do you think there is still some room to grow on the customer side, but there is still too much inventory in the market, which has to be sold as -- and customer demand is even falling faster than that?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [27]

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Sorry, I didn't get that. Can you please repeat that question, please?

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Richard Schramm, HSBC, Research Division - Analyst [28]

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So I just want to hear from you what your feeling is about the inventory levels at your customers. Are these clearly below long-term average? And do you think they are in line with their end markets? Or is there still the risk that these destocking effects will go on, and we, therefore, see this quarter-on-quarter decline, we now have seen for 5 consecutive quarters going on?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [29]

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Well, given the limited visibility I have, what I -- basically, what I can tell you is, yes, we have seen a destocking of our customers last year as a part of the significant overstocking that where we basically benefit from for a long time. And right when the crisis started, we saw a slight restocking of our customers because some of them wanted just to be ready for the post-corona scenario, but that was just a minor impact. And ever since that, the markets are again cooling down. So what to expect in terms of the stocking level of our customers, for me at this moment in time, is still unclear. But what I sense is by also the manifold discussions I have personally with customers is that they're all getting very cautious on stocking right now because also their customers basically are unclear with the messages in terms of the future business development.

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Richard Schramm, HSBC, Research Division - Analyst [30]

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Okay. Yes. I mean, the 23% year-on-year we see on Semperflex that doesn't look very much as kind of pre-buying here on your customer side. In fact, I would agree with that.

Final question concerning the supply side. You mentioned that prices in general have turned more favorable than a year ago from the trend and that you also have increased some of your inventories in respect of the current crisis. Have you also enlarged and so far, your forward pricing that -- to try to secure these more favorable pricing levels or is hedging not of your policy at the moment that you say we take the price as it is? And at this moment, we are lucky. If it's changing, then, yes, it's changing.

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Petra Preining, Semperit Aktiengesellschaft Holding - Interim CFO, Member of the Management Board & Member of Supervisory Board [31]

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So this was a very long question. Let me start answering. Yes, there has been some favorable price movements in Q1 but please don't forget that there's also -- those are volume-driven. The lower prices, however, would definitely be reflected in the EBITDA. Inventory-wise, we did some -- or we had some safety stocks. As you're well aware, logistics has not been run smoothly. So we had to be prepared for some safety stock that's why inventory went up a bit, but we expect that to normalize in the upcoming months again.

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Richard Schramm, HSBC, Research Division - Analyst [32]

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Okay. So you're going to make extra buying in respect of pricing, but just for securing the production side, right?

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Petra Preining, Semperit Aktiengesellschaft Holding - Interim CFO, Member of the Management Board & Member of Supervisory Board [33]

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Correct.

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Operator [34]

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We have a follow-up question from Markus Remis.

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Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [35]

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Yes. Actually, 2 questions. Firstly, on the cost savings initiatives you flagged for the second half of the year. If you could maybe outline a bit the main areas of cost cutting, of cost reduction. Is that, I guess, we're talking about fixed costs. But yes, where do you see the biggest levers?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [36]

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Well, obviously, it's SG&A and the overall structure.

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Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [37]

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Okay. Following on the cost side, I mean, we see quite some deflation on the energy side with power, with natural gas. Can you remind us of the breakdown between raw materials, energy and so on? Like how does the cost pie chart for the group look like? And to which extent can you already benefit in the short run from falling energy prices? Or how much is secured via forward buying?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [38]

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Well, actually, we don't disclose this at this level. The one thing I can tell you is obviously that when it comes to certain raw materials, we benefit, of course, as others also do, from declining crude oil prices.

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Operator [39]

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The next question comes from the line of Sven Sauer, Kepler Cheuvreux.

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Sven Sauer, Kepler Cheuvreux, Research Division - Equity Research Analyst [40]

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Four very quick questions from my side. In mid-March or end of March, there was a press release that customers are currently have to expect with delivery times that are 3x normal -- 2x longer than normal. Would the customers currently still have to expect such long delivery times?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [41]

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I think you're referring to a statement on the medical delivery times. And of course, we are fully -- and -- and yes, they are unusually -- we are facing unusually long delivery times right now. And as you rightly said, even 3x longer than normally expected. But this is basically driven by the corona pandemic. And once, basically, the peak will be overcome, then we will also see short delivery times there again.

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Sven Sauer, Kepler Cheuvreux, Research Division - Equity Research Analyst [42]

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Okay. Second question is, can we expect the full year cost for the corporate center to be at a similar level than the previous year as there is still no solution found on the strategic repositioning of Sempermed or regarding Sempermed?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [43]

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That's a very good question. We are currently running a big project dealing with that topic, and we'll provide the info once we're done with the exercise.

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Sven Sauer, Kepler Cheuvreux, Research Division - Equity Research Analyst [44]

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Okay. Then, next question. Could you maybe remind us why -- or this question is regarding the foreign exchange results, driven by the Polish and Czech currencies, could you remind us why you started generating a higher amount of revenues in the Polish currency in 2019 in the first place? Because the share of revenues from the Polish currency is 2.5% in 2019, and it's around 0...

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Petra Preining, Semperit Aktiengesellschaft Holding - Interim CFO, Member of the Management Board & Member of Supervisory Board [45]

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Sorry for interrupting, I think we can cut that short. This is not related to revenues. It's related to intercompany financing.

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Sven Sauer, Kepler Cheuvreux, Research Division - Equity Research Analyst [46]

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Okay, okay, okay. And the final question then, has anything changed or anything the coronavirus or Sempermed regarding your long-term EBITDA margin from 2024?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [47]

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Well, this is -- corona is hopefully just a short-term impact. So the overall assessment and strategy is unchanged.

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Operator [48]

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We have a follow-up question from Christian Obst, Baader Bank.

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Christian Obst, Baader-Helvea Equity Research - Analyst [49]

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Just one follow-up. It's concerning do you follow currently any plan to close or increase capacity in the industrial space?

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [50]

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No. Very clear answer. No, not.

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Operator [51]

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That was the last question.

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Martin Füllenbach, Semperit Aktiengesellschaft Holding - Chairman of Management Board & CEO [52]

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Okay. Thank you very much. Interesting questions. Happy to -- again, happy to report back good numbers from the first quarter. And happy to reach out to you then in 3 months' time when we disclose the second quarter numbers. Thank you very much. Bye-bye, everyone.

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Petra Preining, Semperit Aktiengesellschaft Holding - Interim CFO, Member of the Management Board & Member of Supervisory Board [53]

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Bye.

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Operator [54]

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