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Group Management Report
On 16 December 2022, the Semperit Group reached an agreement with the Southeast Asian glove manufacturer HARPS GLOBAL PTE. LTD. on the sale of the medical business. As a result, assets held for sale and provisions and liabilities held for sale are now reported separately in the consolidated balance sheet. In the consolidated income statement, a distinction is made between continued operations and discontinued operations. The comparative values of the year 2021 were also adjusted in accordance with the regulations. The separation initially includes the sale of the 100% shareholdings in Singapore-based Semperit Investments Asia Pte Ltd (“SIA”) and in Austrian-based Sempermed Europe GmbH (“SME”) as well as specific intangible property rights by Semperit Technische Produkte Gesellschaft m.b.H. (“STP”) and thus the production of examination gloves and the sales and distribution network. For better comprehensibility and compara- bility, the “as-if” results (i.e., as if the separation of the operations had not taken place) or the results from discontinued operations are also presented and explained for better understanding at selected points in the group management report.
In the 2022 financial year, the Semperit Group recorded a significant improvement in its continued operations despite the onset of an economic slowdown. The negative effects of the Russia- Ukraine conflict, for example the supply chain challenges or the enormous energy price increas- es, were alleviated on the one hand by the high flexibility of the operating units; on the other hand, price increases were implemented sensitively, which protected the margins. After the record year of 2021, the result of the discontinued operations declined significantly in line with expectations due to the noticeable end of the corona pandemic-related special economic situa- tion.
Economic environment
In its growth forecast published in January 2023, the International Monetary Fund (IMF) expected global economic growth to fall from an estimated 3.4% in 2022 to 2.9% in 2023 and to rise again to 3.1% in 2024. The 2023 forecast is 0.2 percentage points above the October 2022 estimate, but below the historical average (2000-2019) of 3.8%.
For the USA, a growth rate of 2.0% was calculated for 2022, while 1.4% is currently expected for 2023 (thus 0.4 percentage points more than in October 2022). The forecast for the Eurozone in 2023 is 0.7% (previously 0.5%) after 3.5% for 2022. The growth expectations for 2023 are thus 0.2 percentage points better than the IMF’s World Economic Outlook published in October 2022. The previously negative forecast for 2023 has also improved for the large economies of the Eurozone, Germany and Italy: by 0.4 percentage points to 0.1% for Germany and by 0.8 percentage points to 0.6% for Italy; for France, however, the expectation remains unchanged at 0.7%. The forecast for (mainly Asian) emerging and developing countries shows a similar trend: While a growth rate of 3.9% was predicted for 2022, the forecast for 2023 is 4.0%, which is 0.3 percentage points higher than in the forecast made in autumn 2022. The 2023 forecast for China has been revised upwards by 0.8 percentage points to 5.2%.
In its forecast published in December 2022, the Austrian Institute of Economic Research (WIFO) reported the absence of a previously partially anticipated international economic slump. Despite the global economic downturn in the second half of 2022 and the pessimistic assessment of the economic development by private households and companies, there has been no decline in GDP so far, but only a slowdown in growth. Due to the strong first half of 2022 – despite the downturn in the second half – economic output grew by 4.7% in the full year of 2022. For 2023, GDP is expected to stagnate overall (+0.3%), although a gradual recovery of the Austrian economy is expected from spring 2023 onwards.
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The most significant factors influencing global economic development in the 2022 financial year were undoubtedly the aftermath of the corona pandemic and the effects of the Russia-Ukraine con- flict. At present, there is hope for a recovery, as a gradual easing on the energy markets and a controllable corona situation can be observed.
The effects of the Russia-Ukraine conflict on the Semperit Group in 2022 are explained in more detail in the chapter “Russia-Ukraine conflict”. In contrast to 2020 and 2021, the corona pandemic had predominantly indirect or only selective effects on business development in the past financial year. This is discussed in the relevant sections in the management report.
Development in the raw materials markets
On average, the prices for natural rubber, at -8% (relevant for Sempertrans), and natural latex, at +1% (relevant for Sempermed), were slightly below or at the previous year’s level on the relevant Asian commodity exchanges in 2022.
The average prices for the essential basic raw material butadiene, which is relevant for all segments, reached a significantly higher level in the reporting year than in 2021: +8% in Asia and +26% in Europe. This, combined with a supply shortage in the face of strong demand, led to a significant increase in prices of butadiene derivatives, such as butadiene rubber, styrene butadiene rubber and nitrile butadiene rubber. Another significant factor driving up costs for synthetic rubber in Europe was the enormous increase in gas prices, which averaged EUR 123/MWh in 2022, up 164% on 2021.
Due to a decline in market demand, prices for nitrile latex, the most important raw material for Sem- permed, were significantly lower last year than the overall relatively high prices of 2021 – despite higher average prices for butadiene and acryl nitrile.
The price trend of heavy fuel oil (HFO), like the general crude oil price development, is a relevant indicator for the filler carbon black, which is used in the entire Industrial Sector. In the 2022 financial year, the average HFO price was 28% higher than in 2021. Due to this development and a tight supply situation in the first half of 2022, which had gained additional momentum since the beginning of the Russia-Ukraine conflict, and due to significantly higher energy and logistics costs, carbon black prices in Europe increased by 30% compared to 2021.
After reaching record levels halfway through the year, prices for wire rod – a raw material relevant for the Semperflex, Sempertrans and Semperform segments – eventually eased slightly. This correction was triggered by a global economic slowdown and also by lower economic growth in China, which resulted from the real estate crisis and the Covid politics of the Chinese government, among other things. In Europe, the energy crisis has led to the production of wire becoming significantly more cost-intensive, which puts it at a huge competitive disadvantage over China.
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Russia-Ukraine conflict
On 24 February 2022, the Russia-Ukraine conflict reached a new level of escalation, with Russia launching a war of aggression against Ukraine. Since the outbreak of this war, numerous international punitive sanctions have been imposed on Russia (and Belarus), including in particular an embargo on military equipment, sectoral and goods/services-related restrictions such as export-related bans (e.g., on technology goods, oil exploration and refining goods) and import-related bans (e.g., on oil, coal and other solid fossil fuels, iron and steel products), further sectoral business bans (e.g., the ban on maintaining any economic relations with certain persons) and restrictions on the capital and financial markets as well as on payment transactions. In addition to sanctions imposed against Russia’s central bank, certain Russian financial institutions have also been excluded from the bank communication network SWIFT. The USA further responded to Russia’s invasion of Ukraine by imposing a ban on imports of Russian oil and natural gas. The EU also approved a gradual ban on imports of coal, crude oil and refined petroleum products (oil embargo) as well as on fossil fuels from Russia. In addition, a price cap of USD 60 per barrel for crude oil and petroleum was adopted by the EU at the beginning of December 2022.
The Russian rouble (RUB) reacted with a massive decline in value and the Russian National Bank implemented comprehensive currency restrictions to stabilise the Russian currency market. In the meantime, the rating agencies downgraded Russia’s credit rating to “junk bond” status for high-risk financial investments. The Russian state defaulted on foreign debt as a consequence of the sanctions at the end of June 2022.
Energy prices rose to record levels as a result: In March 2022, market prices for Brent and WTI crude oil initially reached their highest levels in global wholesale trading in over ten years. The prices for natural gas reached historic highs. Further oil price increases were seen later in the year before the situation eased again slightly. Following steady price increases and brief periods of recovery, average natural gas prices rose significantly, although a clear recovery began towards the end of the year.
During 2022, the direct and indirect consequences of these developments already observed included drastically increased and more volatile prices for energy, raw materials, input and intermediate products, transportation and supply chain problems, changing interest rates and interest rate expec- tations, further rising inflation as well as material shortages, particularly in the first half of 2022. Under these conditions, there are still significant effects on the overall competitiveness of Europe as an industrial location. In the 2022 financial year, the Semperit Group was able to largely pass on the increased input factor costs to customers (at least with a slight time lag). However, due to the high price increases and volatility on the European energy markets in 2022, this was not fully possible for the surgical glove production in Wimpassing, Austria, which will remain in the Semperit Group, and thus in continued operations for the time being, despite the sale of the medical business. Potentially passing on prices of further input factor cost increases will depend on the price sensitivity of the respective customers and the dynamics on the segment-specific product markets.
In the context of the EU sanctions, the Semperit Group stopped deliveries to customers in Russia and Belarus shortly after the war started. In the 2022 financial year, the Semperit Group’s total revenue from customers in the countries affected by the Russia-Ukraine conflict amounted to 0.8% (previous year: 4.5%) of the revenue in continued operations.
A shift in global procurement flows and inventory management was noted for key raw materials and consumables used in the manufacture of the Semperit Group’s products as a result of the Russia- Ukraine conflict. The Semperit Group has long since established international multiple sourcing activities. The materials are no longer procured from Russian companies included on the sanctions list or from companies owned by sanctioned individuals. This has led to further changes in sourcing by
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the Semperit Group and in the procurement flows. Availability of relevant materials has been secured; with the exception of individual deliveries of industrial chemicals, no more materials have been purchased from Russian companies as of the beginning of the 2023 financial year.
In the light of the strained situation, reserves of production-critical materials, such as certain fillers and wire rod, have been increased. Storage capacities along the supply chain are used for this pur- pose. However, increasing reserves in relation to the rise in finished products increased the trade working capital to a level that was temporarily deliberately introduced in line with a proactive approach to securing production and delivery reliability on the understanding that it conflicts with the long-term objective of the Semperit Group. These reserves are now being successively reduced. With respect to securing supplies, road freight transport has also seen constraints and an increase in the cost of European freight capacities due to the lack of Russian, Ukrainian and Belarusian truck drivers.
Prices for synthetic rubber, paraffinic oils and fillers, such as carbon black and silicates, correlate strongly with the market price trend for crude oil and natural gas due to the energy intensity of their production. Further suppliers could drop out because of the sanctions, which could result in price- driving surplus demand. In the light of this development, the Semperit Group expects price levels for essential raw materials and consumables to remain above pre-crisis levels. Price pass-through opportunities will depend on the price sensitivity of the respective customers and the dynamics on the segment-specific product markets, with the possibility of passing on increases in input factor prices tending to decline.
The market price trend for oil and natural gas in the light of the Russia-Ukraine conflict led to an increase in expenses for energy. Although the natural gas market has calmed down, prices in March 2023 are three times higher than before. Therefore, the Semperit Group continues to expect additional costs due to higher energy prices. The production of examination gloves in Kamunting (Malay- sia) consumes by far the most natural gas within the Semperit Group. The non-European production sites are not directly affected by the price increases and volatility on the European natural gas market; however, prices were also rising considerably on the international markets throughout the year: For the Semperit Group, this is particularly relevant in Malaysia, where natural gas prices are basically linked to Brent prices, which have risen significantly on average because of the crisis. The current price developments are even more noticeable because of the de-regulation of natural gas prices in Malaysia since the end of 2021. However, the examination glove production in Malaysia now counts as discontinued operations.
In this tense environment, a suspension of natural gas deliveries from Russia, whether as a Russian decision, or potentially brought about by further EU sanctions or the destruction of pipeline capaci- ties, cannot be ruled out. To be prepared for a possible stoppage of Russian natural gas supplies, the management of the Semperit Group has decided to use energy sources and technologies in the future which, unlike the steam boiler burners currently used, do not have to be fired with natural gas. These alternatives are ready to use in Wimpassing, Austria, in Odry, Czech Republic, and in Seligen- stadt, Germany.
The Semperit Group’s management is closely monitoring the geopolitical and market-related developments in connection with the Russia-Ukraine conflict and is taking a very prudent approach to the situation.
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Revenue and earnings performance
Key figures Semperit Group
in EUR million
20221
Change
2021
Revenue
779.8
+29.6%
601.8
EBITDA
100.5
+86.2%
54.0
EBITDA margin
12.9%
+3.9 PP
9.0%
EBITDA adjusted
95.8
+77.5%
54.0
EBITDA margin adjusted
12.3%
+3.3 PP
9.0%
EBIT
62.1
>100%
25.2
EBIT margin
8.0%
+3.8 PP
4.2%
EBIT adjusted
65.4
>100%
25.2
EBIT margin adjusted
8.4%
+4.2 PP
4.2%
Earnings after tax from continued operations
38.4
>100%
3.6
Earnings after tax from discontinued operations
-44.0
>100%
243.9
Earnings after tax
-5.6
>100%
247.5
Earnings after tax adjusted
10.9
-95.6%
247.5
Additions to intangible assets and property, plant and
equipment
50.1
-11.2%
56.4
Employees (at reporting date)2
6,528
-6.1%
6,948
As part of its strategic realignment, the Semperit Group will focus on the Industrial Sector in the future. As a consequence, the Executive Board and Supervisory Board decided on 28 January 2020 to divest the Sempermed segment. On 16 December 2022, the management of the Semperit Group entered into an agreement on the sale of the Sempermed segment with the Southeast Asian glove producer HARPS GLOBAL PTE. LTD., based in Singapore and with production in Malaysia.
With this transaction, the Semperit Group will dispose of the production of examination gloves and the production of porcelain dipping moulds for manufacturing gloves in Malaysia as along with the worldwide sales and distribution units. The conditions for a presentation as discontinued operations were given as of 31 December 2022. The Semperit Group will continue the production of surgical gloves in Wimpassing, Austria, and their packaging in Sopron, Hungary, for up to five years as a contract manufacturer for HARPS GLOBAL PTE. LTD. until the final sale; it will thus remain a continued operation for the time being. The Industrial Sector is completely unaffected by the transaction and thus also remains continued operations.
As a consequence of the sale of the medical business and the resulting application of IFRS 5, primarily the continued operations are presented in the consolidated income statement; the result of the discontinued operations is now only shown in a separate line “Earnings after tax from discontinued operations” after the item “Earnings after tax from continued operations”. The previous year’s figures were adjusted accordingly.
In order to present the results of the continued operations realistically and in accordance with the economic circumstances, the following specifics must be taken into account: The revenues from
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Semperit AG Holding published this content on 04 April 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 April 2023 06:46:04 UTC.
