Streamlined Semperit shifts focus to industrial rubber products

VIENNA, Austria—With the $122.1 million sale of its Sempermed business unit expected to be finalized in the coming months, Semperit A.G. Holding is able to focus exclusively on being an industrial rubber products maker.

"At the beginning of 2020, as part of its strategic realignment, Semperit decided to focus on the identifiable potential in the industrial sector in the future and to complete its transformation to become an industrial rubber specialist," the company said in its recent year-end financial report. "The restructuring steps already taken in previous years have significantly strengthened resilience within the industrial sector and laid solid foundations for future growth."

Semperit recorded just more than $1 billion in net sales in 2022, a 10.5-percent decline against 2021's $1.12 billion in net sales.

EBITDA in 2022 registered at $86.1 million, an 8.6-percent margin. Semperit recorded EBITDA of $344.1 million in 2021, a margin of 30.6 percent.

The higher net sales and margins last year are a direct result of higher sales within the Sempermed business unit in 2021, according to Semperit officials.

The industrial unit of Semperit, which out-gained the industrial unit in 2021, includes Semperflex, Sempertrans, Semperform and Semperseal. The overall segment registered $698 million in net sales in 2022, a 32-percent increase over 2021's $528.9 million in net sales.

EBITDA for the industrial sector in 2022 jumped nearly 53 percent, coming in at $119.1 million against $78.1 million in 2021.

The main product groups in the industrial sector are hydraulic and industrial hoses, conveyor belts, escalator handrails, window and door profiles, cable car rings, ski foils and products for railway superstructures.

"The goal is to serve existing and future markets faster, more effectively and more efficiently," one of the Semperit executives said in an investor relations presentation. "In addition, the systematic continuous improvement across all areas of the company is intended to further improve the Semperit Group's competitive position and sustainability."

To achieve this, Semperit said, it will focus on organic growth and a "clear M&A strategy."

"The focus of the strategic M&A activities will be on profiting from key trends, improving the geographical footprint, broadening the range of business activities within the industrial sector, and driving automatization, digitalization and circular economy," Semperit said.

The medical sector sells examination and protective gloves as well as surgical gloves. The production and packaging of surgical gloves will remain with Semperit as contract manufacturing for the new owner (Singapore-based Harps Global Pte. Ltd.) for up to five years.

In 2022, Sempermed registered $308.3 million in net sales, a nearly 50-percent drop against the $595.4 million in net sales in 2021.

"The Semperit Group accomplished a great deal in the past financial year," Semperit said in its year-end report. "While the environment remained challenging, we succeeded in achieving extraordinarily good results.

"The most important event for our group was undoubtedly the sale of our medical business, which is still subject to various foreign direct investment control and competition law approvals of authorities.

"We have thus reached a milestone in the implementation of our fundamental strategic decision to transform the Semperit Group into an industrial rubber specialist and can now continue on our chosen path with determination."

Semperflex maintains a "hose-only" strategy for its products, choosing to sell both hydraulic and industrial hoses. As such, Semperflex saw net sales of $312.7 million in 2022, a 36.7-percent increase over net sales of $228.7 million in 2021.

Semperflex hoses are used in construction, mining, energy transmission and agriculture, as well as in high-pressure cleaning. Manufacturing locations are in Wimpassing, Austria; Odry, Czech Republic; Shanghai, China; and Hat Yei, Thailand.

Sempertrans, a global conveyor belt producer, sees its production take place in Poland and India. The division makes conveyor belts that are used in mining, the steel and cement industry, and other aggregate and bulk-handling terminals.

Semperit's conveyor belt division saw net sales of $144.5 million in 2022, a 45.5-percent increase over $99.4 million in 2021.

Semperform, which produces molded and extruded products comprised of polymers and plastics, makes its hand rails (for escalators, specifically), cable car rings and ski foils at production sites in Austria, Hungary and China. The unit, which supplies its products mainly to Europe, saw net sales of $105.7 million, a 22.7-percent increase over the $86.2 million in net sales recorded in 2021.

Semperseal, which makes sealing profiles and elastomer sheeting, saw net sales of $135.1 million in 2022, an 18-percent increase over the $114.6 million in net sales recorded in 2021.

The unit has manufacturing locations in the U.S., Germany and Austria.

After a year of precipitous decline in sales of medical gloves, Semperit A.G. Holding decided to sell its Sempermed business unit to Singapore-based Harps Global Pte. Ltd. at the end of last year.

The transaction, valued at approximately $122.1 million and signed Dec. 16 in Vienna, is expected to be finalized in the second quarter of 2023.

An impairment reversal of between $31.8 million and $37.2 million for the assets of Sempermed is expected.

"After achieving the temporary goal of benefiting as long and as comprehensively as possible from the high earnings contributions generated by the boom in medical protective gloves, the divestment process was resumed in 2022 in accordance with the fundamental strategic decision," Semperit stated in the recent year-end financial report.

The Southeast Asian firm Harps Holdings typically invests in energy, property, marine, financial and biomedical products, according to the firm's Bloomberg profile. The company maintains manufacturing facilities in Malaysia.

For the next "several years," its surgical glove production facility in Wimpassing, Austria, and related packaging facility in Sopron, Hungary, will not be part of the deal.

Those facilities, as mentioned, will serve as a contract manufacturer supplying Harps Holdings during that period.

Sempermed also has a manufacturing location in Kamunting, Malaysia.

Since early 2020, Semperit had been saying the sale of its medical unit was imminent.

Semperit achieved the "best results in its recent corporate history" for the year 2020, as earnings (EBITDA) tripled year-on-year to $247 million, on 10.4-percent higher sales of $1.1 billion.

The company kept Sempermed throughout 2021, delaying the divestment in March 2021 and again in August 2021.

But in 2022, as of the end of the third quarter, Semperit Holding A.G. had seen a 73.5-percent decline in earnings for the first nine months of the year, due mainly to a decline in demand for rubber gloves and a strong comparison base from the year before.

The 2022 financial year continued to be characterized by supply chain challenges and high inflation.

"Especially against the backdrop of the ongoing Russia-Ukraine conflict, availability and prices were an issue in almost all areas," Semperit executives said. "This war is thus causing not only enormous human suffering and losses in Europe, but also burdens for companies."

For the 2023 financial year, Semperit expects an economic slowdown, especially in the first half of the year, which will be associated with lower revenue and earnings levels (from the divestment, but also a recovery following the pandemic).

"We will be even more cost-conscious and continue to place a strong focus on working capital management," Semperit said. "The inventory build-up in the aftermath of the corona pandemic and the Russia-Ukraine conflict, which secured our ongoing production and ensured on-time delivery for our customers, led to a significant increase in current assets and thus to an increased capital commitment, which now needs to be reduced again."

Semperit said it plans to achieve this through organic growth, (and) "above all through the investment of a three-digit million amount in the world's first CO2-neutral hose production in our plant in Odry."

"On the other hand, we will take advantage of opportunities for inorganic growth if a company is a strategic fit for us," Semperit officials stated in the investor presentation.