Dätwyler Holding AG (DAE) Earnings Call Transcript

Hello, everyone, and thank you for joining us today at Zurich or in the live web stream. Welcome to Datwyler's Annual Results 2024 Investors and Media Conference. My name is Volker Cwielong, I'm CEO of Datwyler. And with me today are Judith van Walsum, CFO; and Guido Unternahrer, Head of Investor Relations. I wanted to start by thanking our global team for the commitment to Datwyler and to highlight how important last year was, not only financially, but a foundational and transformational year for our teams. Today's agenda, we will cover our business review 2024. Judith will take you through the 2024 financial review. And in the third part, I'd like to share our market expectations to touch on an overview why we believe we are well-positioned in key areas and share some details about our recently announced transformation program, ForwardNow. We plan to run the presentation about 45 minutes. After that, we want to leave ample time for your questions, so we can end the session around 3:00 Central European Time. Let me now turn to our business review 2024. Datwyler's reporting CHF 1.108 billion revenue for the full year 2024, which is 3.8% lower than 2023, resulting from restrained demands in 4 out of 5 of our end markets. And adjusted by currency impacts, our business experienced a decline of 1.4%. Despite these weak markets, we managed to keep our operational margins stable. And this is due to active pricing and cost management in almost all regions and therefore we could adjust -- secure an adjusted EBITDA margin of 10.7 versus last year's 10.5 and as well a robust free cash flow. And we've leveraged this challenging phase in our markets and stayed laser-focused on to consistently pursue the important projects in our business optimization, our automation of processes and also our future innovation. And we've also managed to collect new business wins in the sectors Healthcare and Automotive with a major share in high-value categories. In December, Datwyler has started a transformation journey called ForwardNow, to prepare for market recovery and to sustainably accelerate our revenue and profitability growth. And through this program, we will enhance our solid foundation from a position of strength. And the associated onetime costs amount to CHF 37.9 million. And as you can see, all of them were fully charged in the 2024 financial results. Datwyler's business is diversified across several end markets and regions. And this is why we do not depend so much on short-term impacts in single markets. And 2024 was a challenge in that respect as the demand was weak in 4 out of 5 of our end markets. Under normal conditions, our low cyclical Healthcare and the Food & Beverage industries with an overall share of almost 60% of our revenues would stabilize economic fluctuations well in our portfolio. However, our largest market segment, Healthcare, experienced continued destocking at our customers. And although we already saw first signs of recovery in incoming orders towards the end of last year, the destocking still had a substantial impact on our volume demands in 2024. The global production volumes for the passenger cars markets, they had a slight decline last year. And this growth of battery electric vehicles was also slower than most of us would have expected. And this has clearly limited our opportunities in 2024. But let me add that given to our positioning in the market and the wide range of our applications of our products, we do not directly depend on the business performance of single carmakers. The oil and gas market was characterized by uncertainty and low activity during the election year in the U.S., which had a significant impact on our revenues in that particular segment. The market for single-served coffee capsules performed well in the reporting year with a growth in the low to mid-single-digit percentage range. And due to our positioning primarily in aluminum, we were able to outperform this growth clearly. The other industries we do address with our product portfolio experienced in some countries a quite hesitating sentiment, low investments. And this is also why we could not increase our sales in these segments. But generally, we took the opportunity to optimize our production infrastructure already last year and also reallocate product lines within existing plants during this 2024 moderate utilization in some of our sites. Can we go to the next slide, please? Thank you so much. Our teams showed an impressive momentum in business development and won attractive new customer projects in almost all segments. This is particularly important regarding the accelerated transition into high-value segments, that's one of our prominent goals. In Healthcare, we've increased the share of projected revenues from high-value projects in our pipeline to above 60%, and we could further intensify our collaboration with leading drug manufacturers worldwide and line up projects towards serial supply. And in the first quarter of 2025, we plan to start and gradually scale up serial production of high-quality plungers from the Datwyler first-line standard for GLP-1 receptor agonists, the so-called weight loss drugs. For Automotive, we have significantly increased our share of new business wins for electrified applications to above 50% and 1/3 of our new business wins for connectors refer to the attractive segment of high-voltage applications. We have shaped substantial progress in our sustainability activities by reducing our CO2 emissions of the global plant network by 30%. Datwyler committed as well to work towards binding greenhouse gas reduction targets by joining the science-based targets initiative and EcoVadis has granted us the highest sustainability rating, which positions us among the top 1% of more than 150,000 rated companies. Our teams achieved important progress in our innovation projects, including SoftPulse, and could successfully line up our pilot production line on an industrial scale for electroactive polymers. Judith, I'll turn the presentation over to you for the financial review.

Thank you very much, Volker. I will start with giving you an overview of the P&L statement, and then we will go into the detailed lines. When you look at the P&L, Volker already indicated this. Net revenues went down by minus 3.8%. Currency adjusted, the revenues amounted to minus 1.4%. Our gross profit, however, was only impacted by minus 0.8%, thanks to comparably lower cost of goods sold. As a consequence, gross profit margin increased from 20.9% in 2023 to 21.5% in 2024. Operating expenses increased, and that is where you see the impact of the CHF 38 million transformation-related costs, consisting of CHF 9 million in impairments and CHF 29 million in provision -- extraordinary provision built in December. As a consequence, our reported EBIT went down to CHF 80 million. If you, however, correct the EBIT for this extraordinary spend, then you would end up at CHF 118 million, which is broadly in line with prior year. Our EBIT margin adjusted, so prior to this transformation expenses increased from 10.46% in 2023 to 10.7% in 2024. Overall, net finance results went down. There are some movements behind that, which I will explain later on. And income tax expenses went also down in absolute terms. This then results in a net result of CHF 31 million reported and again, adjusted to a number that is higher than the CHF 67 million of last year, namely CHF 69 million. So let's have a quick look at -- I'll try the -- yes, it works. Thank you very much. The next slide. This gives you an overview of the bridge in our revenues between 2023 and 2024. As you can see, over 60% of the revenue development was due to unfavorable currency impacts. When we look purely at the currency adjusted results, the minus 1.4%, then you can see that we had a negative volume impact of CHF 17 million, partially offset by price increases of CHF 8 million. The CHF 17 million volume reduction reflects the challenges faced in our end markets, both in Industrial Solutions as well as in Healthcare. In addition to that, I would like to point out that in 2023, we still had CHF 7.5 million in sales related to high-margin components for COVID vaccines. This will be the last year that I will mention COVID in this sense. When we look then at the -- I'm one slide too far, I believe. Can you go one slide -- yes, thank you. When I look at the bridge for EBIT, then naturally, the lower demand that we have experienced in the different markets also has led to a lower gross profit, which naturally then has an unfavorable impact on our EBIT. However, our comparatively lower cost of goods sold has been able to compensate and largely offset that impact. Three factors play to that. One is a logical consequence of a lower demand. We have lower volumes to produce. Secondly, we experienced lower prices for raw materials and other cost of goods sold. And last but not least, we have introduced several cost saving and optimization measures already over the course of 2024. The big-ticket item in this bridge is naturally the posting of CHF 38 million in transformation-related costs on the other operating expenses line. For us, a very, very important step forward to help us safeguard and also grow our -- and accelerate the growth of our revenues as well as our profit margins. Volker will explain in greater detail what is behind that and what we seek to accomplish. Normalized, so correcting for the transformation costs, as mentioned before, our EBIT is at CHF 118 million, which is broadly in line with last year's CHF 120 million. I will go to the next slide. Healthcare faced a reduction in net revenues of 4.9%. Over half of that or about half of that is due to a negative foreign currency impact of around CHF 11 million. The resulting minus 2.5% currency adjusted sales are due to continuing destocking in the industry. We've seen an uptick in our orders in the last quarter of 2024 compared to similar or to the order patterns the year before. Those, however, will benefit us in 2025 and have less of an impact in the year 2024 itself. Now as a logical consequence then of the reduced volumes and as well a lesser favorable profit mix than what we had in 2023 when we still had these COVID sales, we basically see that this has a negative impact on the gross profit and therefore, on EBIT. In contrast to Industrial, we were not able to fully compensate for that through lower cost of goods sold. As you may be aware, we have invested quite materially over the last years in building up our global presence and also our capabilities in first line in this industry segment. We have made a conscious choice to maintain this and to continue building this up so that we are ready for the uptick that we are foreseeing in the markets '25 onwards. The end result is that we have an EBIT adjusted prior to transformation cost of CHF 62 million and an EBIT margin -- a corresponding EBIT margin of 13.9%. Healthcare carries around CHF 50 million of the CHF 38 million in transformation-related costs, which naturally then lower the reported EBIT and EBIT margin. When we go to the next slide, you will be able to see the bridge for Industrial Solutions. Also here, we have been impacted quite materially by unfavorable head count or unfavorable FX developments, totally amounting to CHF 16 million. When we take this out, the currency adjusted growth was at minus 1%. In contrast to Healthcare; however, you can see that this negative impact of a declining top line was fully offset by lower cost of goods sold, leading into the end to an improvement of our adjusted EBIT of 22% and a total EBIT of CHF 56 million, which is well above prior year's CHF 46 million. The corresponding EBIT margin amounted to 8.5%. The Industrial Solutions segment carries CHF 23 million of the overall CHF 38 million in transformation. And therefore, you see that reflected again in the reported EBIT and reported EBIT margins. If we go to the next slide, if we complete the P&L, then I would like to speak shortly to the net financial results as well as the tax expenses. When we look at the total interest expenses, they have gone down, thanks to the repayments that we've made of our loans, particularly the debts that we were holding towards third-party banks. When we look, however, at the expenses that are linked to finance and particularly the costs linked to hedging, our foreign currency transactions, then you can see that we incurred fair value losses on our forward contracts. We hedged up to 80% of our transactional exposure. And so what we -- there's a net negative impact of CHF 4 million. When we add these 2 together; however, overall net financing cost went -- improved in absolute terms by CHF 1 million. When we look at our tax expenses, then you can see that these went down in absolute terms to CHF 21 million, reflecting also the lower earnings before tax. I move on to the balance sheet and I would like to highlight 3 points. The first one is our net working capital development. Overall, in absolute terms, it stayed stable at CHF 311 million or 28% of sales. And what you can see in particular is an improvement in our trade accounts receivables. Partly, this is a consequence naturally of the lower revenues that we incurred over the year '24. It is also, however, due to a more strict management of our accounts receivables, as you can see also in the aging table. Our accounts payables were impacted also by lower volumes. But in addition to that, 2/3 of the, call it, deterioration in accounts payables is actually due to discounted prepayments that we made towards one of our vendors. Inventories went slightly up. This is due to changes in our freight routes particularly between India and Europe which led to more goods in transit and also slightly increased stock. We had to change the trade routes due to political issues in the Red Sea area. I move to the next slide, where we can see basically the development of the net debt. As you can see, we have paid off a material amount. In fact, we have paid off CHF 52 million. So all our debts with banks, third-party banks, both short-term as well as long-term. We also have paid out the CHF 150 million bond we had, replaced that with a newly issued CHF 120 million bond in addition to the CHF 240 million bond, which we left unchanged. And we extended the loan towards Pema with -- or the loan with Pema as our anchor investor with CHF 17 million. However, overall, net debt went down. EBITDA stayed stable. So the adjusted EBITDA, so prior to any transformation-related impacts, stayed stable at around CHF 200 million. And therefore, we see a clear continued deleveraging and an improvement of our net debt-to-EBITDA ratio to 2.2. The third point I would like to highlight is then the equity ratio. As you're aware, we are striving for an equity ratio of 40%. Very important here is that we are offsetting goodwill against equity. So it is, in that sense, more depressed. Equity stayed at 32% versus 32.2% last year despite the fact that we include here a CHF 29 million provision linked to the transformation. If you would take that out, we would be at around 35%. This brings me then to the free cash flow. The overall free cash flow at CHF 128 million stayed strong in absolute terms. It reflects, on the one hand, the net cash from operating activities. There, you do see a decline. This is particularly due to actually a baseline effect. So in 2023, we had an extraordinary impact in the sense that we liquidated CHF 30 million or nearly CHF 30 million in COVID-related inventories. And that, of course, does not come back in the year '24. Our net cash used from investing activities went further down. So our CapEx spend over the year '24 amounted to CHF 46 million, and that is around 4% of sales. From a historical perspective, this is not so much an issue because 3 years of high investments between 2020 and 2022 have been offset by the last 2 years, '23 and '24, where depreciation by far outweighed further investments. So from a historical perspective, depreciation, capital expenditures are more or less equating each other. Moving forward, however, we do expect that to change and we do expect our CapEx as a percentage to go up to the range of 5% to 7%. When we look at the free cash flow itself, it gave us enough financial flexibility to repay our debts as just shared, as well as payout CHF 54 million dividend payment for the year '23. So on that note, I would like to ask Volker to come back and really outline his expectations towards the market as well as our outlook for our performance for '25 onwards.

Yes. Thank you very much, Judith, for that insights on our financial situation. Now, let me summarize our market evaluation on the one hand and our positioning for 2025 and beyond, referring to our end markets that we have already shown in the introduction. In Healthcare, the destocking bottom appears to be behind. We expect the end of the destocking in our commodity by mid of 2025 and a return to the long-term growth trend in injectables. And as Judith mentioned, during 2024, we've maintained important and required capacities and expertise to be well-prepared for the expected market rebound. In Automotive, most of the experts expect a forecast in terms of a slight growth for 2025 for light vehicles in a realistic scenario. However, battery electric vehicles and vehicles with electrified powertrains are expected to grow significantly above average and primarily in China as being the main growth driver in that segment. And remember, more than half of our 2024 new customer project wins came from China. We assume that the positioning of the recently elected U.S. government will most likely have a positive impact on one of our core segments, which is oil and gas. And this segment, we do address with certified components as leading player in North America. For Food & Beverages, we expect our relevant market to grow further, particularly in aluminum capsules, which helps us to capture further value in the years to come. And despite the restrained sentiment in other industries, we are cautiously optimistic because on recent new business wins for some outperforming applications such as HVAC, water, and connectivity, we are well-positioned. And this is why we strongly believe that Datwyler has lined up the right product portfolio in both Healthcare and Industrial Solutions to benefit from the expected development in our target markets. For instance, the long-term growth trend for prefilled syringes with annual growth rates of more than 10% is still intact, such as for vehicles with electrified powertrains with an annual growth of more than 50% until 2030. Demands in materials, components, and solutions are changing constantly and this has opened up great opportunities for our innovation teams. Compared to most of our existing products and applications, the majority of our innovation projects are targeting platform technologies, which we can seamlessly adapt to multiple industries and applications. The integration of sensors and electronics into elastomer components will turn the traditional component into a smart responsive solution provider that integrate various functionalities. On smart components, for instance, they can enable and capture and do analysis of real-time performance data, so our customers can optimize their equipment downtimes. They can learn more about efficiency and improve their efficiency and optimize their operations. In the area of wearables and medical devices, we offer solutions for biofeedback monitoring and bioelectrical stimulation. As you know, Datwyler SoftPulse already made it to various small-scale serial applications. Our teams also leverage AI to accelerate the development of new materials, optimize functionalities and our formulations of the material and predict the material behavior under various conditions, especially for harsh application environments. And some amazing outcomes of this are thermally and electrically conductive materials, shielding materials for high-voltage batteries, for instance, our sustainable materials with enhanced environmental footprint. In summary, our innovations will empower Datwyler to unlock greater value along and throughout the whole value chain in the future. Some of our markets have changed significantly during the last 5 years. And over its 110 years history, Datwyler has continually reinvented itself. And as a part of our annual strategy process in 2024, this fall, we have outlined 7 key priorities that will enable us to: First, increase the share of co-developed products to boost our high-value offering, to enhance efficiency, and to commercialize our innovations faster into products, to deliver premium customer value and with well-positioned value pricing, standardize our processes across now 24 -- 27 sites in 11 countries to support scalable and profitable growth and to focus on value for customers and investors through sustainability initiatives. And Datwyler will promote leadership rooted in our company values, emphasizing responsibility and entrepreneurial attitude and mindset. And these priorities aim to drive growth, innovation and long-term value creation. And we will ensure the full alignment of our whole organization to these priorities with our transformation program, ForwardNow. The program focuses on the 4 key areas: Production network, commercial excellence, product portfolio, and target operating model. We are fully convinced that this is the right way to unlock significant synergies to enhance our competitiveness and first of all, to better position Datwyler for the future. And Datwyler will be aligned better to the challenges in our target markets and regions, which will respond much faster with higher transparency across the entire organization and consistently eliminate non-value-adding activities from our agenda. The target operating model establishes clear and efficient structures and will enable scalable growth in the future, both organically or inorganically. Until end of 2027, we expect cumulative profit improvements of CHF 52 million from 10 work streams in these 4 key areas, which will be orchestrated during that period of 3 years. ForwardNow is established with an internal transformation office that will provide full transparency to the management and also ensure that the organization is not distracted in their day-to-day activities and operations. The successful completion of these work streams should enable Datwyler CHF 24 million annual uplift starting from 2028. And please note, ForwardNow is not a simple cost-cutting program, but it's a set of interlinked initiatives to realign the company for accelerated profitable growth. And the reported CHF 37.9 million one-time effect from ForwardNow have been fully charged to the '24 financial statements and they allocate 61% to Industrial Solutions and 39% to the business area, Healthcare Solutions. And the full amount is structured in 25% impairments, 28% enabler cost, which also include expert support for particular initiatives and approximately 47% personnel costs, including up-skilling and workforce rightsizing. It is common for new insights to emerge during such a program. And therefore, we will also consider further strategic decisions with regard to that along the way. Following our market evaluation, we expect a mid-term annual organic growth in the higher single-digit percentage range and an EBIT margin of 17% plus under normal operating market conditions. And based on the solid free cash flow and our strong position in our markets, Datwyler will propose a dividend of CHF 3.20 per bearer share to the annual general meeting. Before I finish the session, let me introduce 2 highly qualified individuals who will strengthen Datwyler's Board and as well the Executive Committee. Britt Hendriksen will be proposed for election as a new additional director and as a representative of the public shareholders at the next Annual General Meeting on 18th of March 2025. Britt brings more than 20 years of experience in global healthcare management positions with her. And in her last role as group CFO of Unilabs, she supported development and the implementation of a growth strategy throughout organic expansion and acquisitions. Michael Holler has been appointed as an additional member to our Executive Committee. Michael Holler is also here with us at Zurich, if you're interested in having an exchange with him. He has started on 1st of February and is our new COO and head of the division, our business area Industrial Solutions, and brings more than 30 years of experience primarily in operational excellence and quality. I had previously been in charge of this business area besides my role as CEO. Let me emphasize that Datwyler has demonstrated a solid performance in 2024, facing various headwinds and unfavorable business climate in most of our end markets. However, we believe that we are well prepared for an expected recovery in some of our end markets on the short and mid-term and well positioned for long-term growth. ForwardNow will help the organization to accelerate this development and the company to create more value. I'll now hand over to the session to Guido Unternahrer and to move to our Q&A session. Thank you very much.

So we will start with the Q&A session with questions from this room, and please wait until you have the microphone, so that our guests in the live web stream can also understand your question and then the following answers. So who would like to start?

Charlie Fehrenbach, AWP. I've got 2 questions. The extra costs of CHF 38 million you mentioned for this for '24, where do they expect -- do you expect them to be in '25 comparable and also the split between Healthcare and Industrial Solutions, will this be more or less the same? The second question is, given the uncertainties on political uncertainties, watching all these announcements from the U.S. government, maybe you can give a little comment if you see more risks, more chances there, what do you expect there?

As we've shown before, 61% of the CHF 37.9 million are accounting to Industrial Solutions and the rest to Healthcare Solutions. Regarding the payback, and that's how I understood your question, over the period of 3 years and how we set up this cost more or less over that period is the CHF 52 million that will gradually be cumulative over this period of 3 years. And it surely depends on how we orchestrate these 10 initiatives out of these 4 key areas over this course of -- over the course of these 3 years. So it's naturally that in the first years, we will have less impact, a positive impact because the activities will be starting or some of them have already started now and more of these impacts will then happen in the year '26 and '27.

The costs [indiscernible].

The costs are already in the financial statement of 2024, but the benefits will evolve over the 3 years period of ForwardNow.

So there is typically a cash outflow against the provision, and that's how we manage it. So you can expect that we are front-loaded in terms of that cash outflow in '25 and that the benefits come through '26 and '27 onwards. So '26 should already be net positive in terms of benefits outweighing the costs. Yes. But this is handled via the balance sheet, not via the P&L. Okay. Maybe I can follow through on the second topic. We're living in interesting times to your point. We have done naturally in anticipation of the Trump administration coming in, a full assessment of our import and export flows between our different affiliates. We have also worked closely with our vendors as well as our customers. We have reviewed our contractual conditions. And based on that, there -- depending on the scenario, there will naturally be impacts. Having said that, given the fact that we have a big presence in the 3 key regions, yes, in China, in the Americas, in Europe and have a local-for-local strategy, we are, to a large extent, able to mitigate that impact. So I can't say that we will be absolutely free from impacts, depends really on the scenario that the Trump administration will actually hold on to. For the rest, we're continuing monitoring the situation closely. As you're aware, it's changing daily at the moment.

Michael Foeth, Bank Vontobel. A question on your production footprint. Could you maybe comment what adjustments you're making to your production footprint? And what effect that has on your capacities overall?

Yes. Thank you for the question. I would refer first to Industrial Solutions. So as you can see, we have quite a wide portfolio of products, and we've acquired recently, over the last 5 years, also a large amount of business that is yet to be combined in terms of synergies. Yes. So in fact, some of the processes are similar and some of the plants do have a lot of technology. Each single plant has a lot of broad variety of technologies and processes. So now the first step is to see, do I need every technology and with that also high fixed costs level in each of these plants? Or can I establish kind of a combination of production steps or allocation of certain products to plant 1 and others to plant 2 in order to create higher synergies? Yes. That's more or less a technical approach to it. The other approach basically is in terms of the target operating model that also asks the question, which activities a production plant has to cover. If you buy a company from a -- for instance, family-owned structure, usually, the plants have a full-fledged management with full-fledged finance and everything around and sales. So this is not what we need. So we have to address and allocate the, let's say, an adequate setup for a production plant versus a regional and a global organization that can provide services to these plants. Yes. And this is also yet to be completed. And the third point I want to mention, as some of the plants have quite a long history and have been acquired over the last 15, 20 years, partially, the products have changed. The product portfolio has changed and as well the technologies that our customers are asking for. For some of the products that I still have today may have been acquired 15 years ago, I'm not the right supplier because times have changed, our product focus has changed and this is also where we want to gradually replace commodity products with high-margin products in these plants, also thus changing the technology footprint and as well the plant footprint in order to accommodate these new products in our infrastructure.

[ Martin ] [indiscernible]. I have a question to Industrial Solutions. Could you give us more color on the adjusted margin expansion? How much was related to lower raw material costs and how much was related to operational improvements?

One hundred basis points. I don't know if we have that split in detail. However, I can give you kind of a glimpse. In fact, we have 3 key areas that we were addressing. First of all, COGS, means the management of incoming goods versus the sales. That's, I think, quite a no-brainer to adapt that. I think we did a very good job on that. Second part is the waste of raw material in terms of processes. So rubber waste, we call it rubber waste. There is one part is the technical waste that is more or less imminent to a certain process. And the second is due to inefficiencies in the process. So this was our focus because, first of all, material waste is something that's very expensive. And second, it's not very much playing into our sustainability journey. And the third area is the production scheduling in single plants means the order processing which amounts and which lot sizes do we produce in what sequence. Yes. And so setting up machines and changing tooling in our machinery is downtime, it's planned downtime or even unplanned downtime if you do not schedule your plant in the right way. And what we could see is also a substantial progress in -- to that extent, which will then also be implemented in a more sustainable way through this target operating model, where we also have kind of a benchmark in comparison what is the ideal way to run a production plant and to run a production sequence in very similar processes.

[indiscernible]. I have a question on the CapEx side. You were mentioning that CapEx might go up, if I understood you right. Do you have a target ratio maybe? And can you talk about the big blocks you might invest in? So where is the big chunk you're going to invest more? Because it looks like you made a lot of investments and kind of constant investment you have to do, obviously, which is reflected in depreciation. So I'm wondering whether it's -- there are some new projects you have to invest in?

Thank you for that question. I mean, first of all, as Judith has mentioned, we do believe that a adequate run rate over, let's say, a 3-year period will be more or less in the region between 5% to 7% of sales. Why do we have this fluctuation right now? I mean, first of all, we have invested heavily in a plant infrastructure in, yes, particularly to set up in each region a first-line production facility. I mean this has been a really important decision and also gives us a huge access to our customers in terms of new orders and new business. However, some of the plants still have overcapacity -- are underutilized, and in order to fill these plants with products, we need to buy equipment. Yes. So some of the process steps will be gradually extended in terms of number of machines and extension of kind of an equipment in the process step, and that will be, yes, I think the major amount for ramping up and closing the gaps in terms of underutilization in our factories.

Bernd Laux, Zurcher Bank. The first question would be regarding your comment on the GLP-1 related products. Is that comment related to a first customer going now into full serial production where you have captured a second source contract? And in addition to that, do you expect to go also into production with other customers next year or the year after? And the second topic would be your remark on the magnetic-active and electroactive polymer developments. Can you shed some more light on the potential applications where you're developing with your partners, and on the potential time line when these products will really go into the market?

Thank you very much, Bernd, for that question. Let me refer to the GLP-1 planned ramp-up for Q1. I mean we cannot share with you details on customers. I think that's clear and understood. We are working with both established customers who already sell products in the market and as well with customers that are yet to go in serial production with their products. So we are working on many products or projects with this bandwidth of customers. The ramp-up will be a second source, which will be then starting in Q1 and gradually ramping up over the next months and years. I mean the second part of your question has been answered that as well. When the other customers will go into serial production with their products is subject to approvals, for instance, of FDA or EMA. So this is something I cannot really share, I mean, this is not up to us and nor up to our customers. Yes. So for sure we hope to be in serial production sooner than later. However, that's not up to our decision. On the magnetic-active polymers, what we see as applications is pressure sensing in many possible applications such as robotics, robotic arms, as well pressure control and flow control in piping installations, which will allow as well our customers to monitor the conditioning of a ceiling without disassembling it. And with looking at preventive maintenance, which is a huge cost block, especially in regulated industries and safety installation. This has the potential of gaining traction quickly. However, it is very difficult to predict when these products go into a mass application. Currently, we have, with some of our partners, we do proof-of-concept currently. We have very, very good results in these testing and validation activities, and we are very confident that we can line up a small-scale production facility in due time.

Sebastian Vogel from UBS. I have 3 questions. I would ask them one by one, if possible. The first one is with regard to the medium-term margin guidance. So the lower threshold compared to the previous margin guidance was set 1 percentage point lower, if I'm not mistaken. Just to get your thoughts in that regard, what was driving this sort of lower threshold? What were the key points that have changed from the last time when you were initially putting out the initial guidance that was applicable beforehand? That would be the first question. I would ask the others.

So, we have naturally -- the original guidance of the 18% to 21% that you're referring to dates from Capital Markets Day 2021. Since then, we have seen major changes in our markets in how our customers and what they are demanding. And we felt it was essential that when we go in with the midterm guidance that we take the realities of the markets into account. It also needs to take into account our performance over the last years because clearly the last 2 years, as you can see from our results, have set us back, and we need to ramp that up again. The third factor is that we have relooked at our strategy. We've had a major strategic review where we have identified what we prioritize, but also what we are not prioritizing moving forward. And that leads then to an updated guidance for the midterm of 17%.

Second question, I guess, I can combine it with the third one because it's kind of short ones. The second one is with regard to the reporting structure. Within Industrial Solutions, I saw from the slide deck that you have shown the sort of the percentage share of the revenue that we're allocating back to gas, to auto instead of mobility and Industrial Solutions, what was it, General Industries, yes. So the question is just like what's the plan going forward? Are we sort of -- are we used or can we get used to having any sort of split that will be provided also going forward? So that's the first question. The other one that I will just plug in there as well. With regard to Healthcare, can you sort of give us an indication what the sort of the revenue exposure that at the moment you have to high-value products and how you see that number developing, yes, over the next 12 to 24 months to have a bit of a sense there?

On our reporting structure, as you can see, I mean, previously, the reporting structure was more or less driven by an acquisition that we did. And with regard to end markets, this does not really capture the point, right? So also in terms of communication towards the investor community, and I do understand it's very important -- very difficult for you to see what is the percentage of connectors business unit going into different markets, right? So from that point, we've decided to allocate the part of connectors business unit into the automotive market that belongs into that market segment, and to allocate the rest into other industries perspective, other applications that would then also reflect the dynamics in that particular end market. And going forward, also, I mean, taking ForwardNow, we will also along with this target operating model, assess a structure that reflects better markets versus the reporting units that we have previously taken. Yes. Your second question on healthcare, and I do understand how do we expect the share of high margin or high-value products to evolve. I mean, currently, more than 60% of the projected revenues out of the leads that we are working in different phases are in the sequence of high value. And high value, just to recap that, we do define with all the products out of --coming out of our first-line facilities and products that include some additional packaging services, for instance RTU and RTP. Yes. And so from that definition, we see that everything that comes in is to a much higher share, high value allocated than before due to the fact that we have really gained traction with global drug makers, getting accepted on certain development phases or for certain applications much better than before. And that also leads clearly to our focus and our priorities in terms of taking leads together with customers.