Rieter Holding AG

Ladies and gentlemen, welcome to the Semiannual Report Media and Analyst Conference Call. I am Sandra, the Chorus Call Operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Norbert Klapper, CEO. Please go ahead, sir.

Thank you very much. Good morning, everybody. It's a pleasure to talk to you about the half-year results 2020, although they are not good. which is not a surprise to you. We have announced that already in late May. I will start with the key messages on page two. As I said, we already published in late May that our business has been severely impacted by the COVID-19 virus. And as a result, we booked in the first half year an order intake of 250.7 million. We booked sales of 254.9 million and an EBIT due to the low volume of minus 55 million. Before restructuring charges, the EBIT was at a level of minus 46.9 million. Obviously, we implemented a COVID crisis management when the crisis emerged. and our restructuring actions that we announced in January are going according to plan. We expect a better second half of the year, and I will come to the reasons for this assessment. At the same time, we continue to implement our strategy because we are convinced that this strategy will still be the right one after the COVID-19 crisis. And I have to announce a change in the group executive committee. So now I move on on page three, which gives you some more details on the numbers, comparison between 19 and 20. I would like to focus here on the reasons of the numbers, reasons for the numbers. The low order intake, yes, there was as a result of the COVID-19 outbreak, there was a deferral of investments and scheduled deliveries by customers. And what is even more harmful to the retail business is when the mills stop production, and this is what happened in March. There was a sharp decline in demand for wear and tear parts, which we supply out of our components business group, and for spare parts, which is what we supply out of our after-sales business group. And both were suffering, as well as the machines and systems colleagues, from the crisis. And we see that in the order intake and also in the sales number. The reason is always the same. It is in the machines and systems business, the... the investment sentiment, which was basically zero when the outbreak happened, after the outbreak, and the postponement of deliveries, and for the components business and the after-sales business, it was the fact that the mills had stopped production at a great extent. EBITDA, EBIT before restructuring charts, and net profit are a result of the low sales volume. I would like to mention here that we have been able to reduce our SG&A cost line by $10 million compared to the first half year 2019, but this was by far not enough to compensate for the low volume. When we come to the free cash flow line, you see that our free cash flow was at $95 million, minus $95 million. $55 million out of this went into inventories. that we will need for our shipments in the second half of the year. And the net liquidity line needs also some explanations. In December 31st, we had liquid funds of 285 million and a debt of 122, which led us to a net liquidity of 163. You might remember this number. Now, half a year later, our liquid funds are at a nice level of 253 million still, a little lower than in December, but still high. But we have debt now of 217 million because we drew term loans in March to make sure that we can pay back the bond that we have out there in September. That is why we did that, and this is how liquid funds of 253 million and the debt of 217 million come together to a net liquidity of 36 million. When you look at these numbers, you see that liquidity will not be a problem for Rita, even if the crisis takes a lot longer than we expected. On page number four, you see the order intake by business groups. And I already talked about that. It is always the same story behind that, the postponement of shipments, the low investments, and on the other hand, the mills, which have been stopped. On this slide, I'd like to highlight the third bullet point on the right side of the slide, the order backlog. The order backlog is still at a level of 490 million. And that is one of the reasons why we are convinced that our second half of the year will be better than the first half of the year. In June 2019, for comparison, we were at a level of 295 million. So we are in a much better position this year. I come to page five now. They tried sales by business groups. Same story again. I don't want to repeat it. You see how much our two business groups, components and after sales, suffered from the market situation. And as I said already, the reason is that so many mills had stopped production because of the low fiber demand, which was a result of the lockdowns. On page six, you see the sales development by region. There is two regions that stand out here. This is India, where the decline of sales was very high, 73 percent. And the reason is that the lockdown in the country basically stopped people from shopping. And we had a different situation in Turkey. In Turkey we had an improvement compared to 2019. We have to say that in 2019 we were at a very low level in Turkey and there was an upswing in the first half of the year and this is associated with the innovations that we presented in Barcelona. We had additional sales here that we generated due to the fact that we presented the new machines one year ago. All right, so that was the overview, the market and sales and order intake. And now I'd like to hand over to Kurt, who will walk you through page seven and the following pages.

Thank you, Norbert. Welcome and good morning from my side. I start on page seven with EBIT before restructuring charges. The first half year 2020 ended with a loss on the EBIT before restructuring level of 47 million compared to last year's loss of 1.6 million. With 48 million, the lower gross margin was the biggest contributor to this deviation. The volume effect on the gross margin counted for 44 million out of these 48 million. The divisional mix shift to more machines and systems with a below average margin added another negative 11 million. Overall, readers saw a reduction of the gross margin of 1.9 percentage points from 27% to 25.1%. The other income expenses before restructuring were 6 million lower than last year. This is mainly due to the higher income in 2019 from the sale of real estate in Germany and India, as well as the reduced income from export incentive schemes, which are volume-based. The cost-cutting measures already mentioned by Norbert and implemented in the first half year contributed, among other things, to a reduction of SG&A expenses of around 10 million. On innovation, however, Reiter did not compromise. Consequently, R&D expenses did not decrease, actually even increased slightly, despite the market situation. Reiter intends to forge ahead with the strategy in the coming months with a view to strengthening its market position for the time after the COVID-19 pandemic. I'm going to slide eight. The COVID-19 pandemic led to a market situation where demand for the goods and the services of all three business groups decreased significantly. This exceptional market situation gave rise to losses in all three business groups. The business group machines and systems is affected by the deferral of investments and deliveries by customers and posted sales of only 120 million, a drop of 100 million compared to the previous year's comparable period. Combined with the ongoing innovation program, machines and systems recorded at the epic level before restructuring a loss of 40 million. At the same time, the demand for wear, tear, and spare parts declined sharply due to the suspension of production in many spinning mills around the world. This is reflected in the low sales of the business group's components and after sales and as a consequence, in an EBIT loss for both business groups. I'm on slide nine now. REITER has implemented comprehensive crisis management. Priority is being given to protecting employees, fulfilling customer commitments, and ensuring liquidity. The necessary measures to protect employees have been implemented worldwide and the order backlog is being processed largely as planned. The liquid funds to repay the bond due in September 2020 are on Reiter's balance sheet already. In January 2020, Reiter reported on structural changes in Switzerland, Germany, the Czech Republic, and the Netherlands. This restructuring program is being implemented as planned. In addition, Reiter has introduced 40% short time working in Switzerland and Germany, for the third quarter of 2020. Similar measures will be implemented worldwide within the scope of the available legal options. The decision regarding whether to apply for an extension of short-time working for the fourth quarter of 2020 will be made in September. Now a few words on the balance sheet on slide 10. REITER's balance sheet is solid. Liquid funds are above 250 million. The repayment of the 100 million bond in September was prepared in due time and the funds are included in the just mentioned 250 million. Hence, the current financial debt increased accordingly. Depending on the situation in the financial markets, REIT may consider issuing a bond at a certain point in time, but is not under pressure to do so. Reiter expects a stronger second half of 2020 in terms of sales based on the order backlog of around 490 million. The increase in networking capital of 47 million is in line with the plan to fulfill these customer commitments in the coming months. The equity ratio dropped by almost 10 percentage points to 38%. Besides the effective lower shareholders' equity, this is also due to the increase of liquid funds and financial debt for the repayment of the bond mentioned before. The balance sheet was stretched for some 100 million. Without this effect, the equity ratio would remain above 42%. With this, I pass the word on to Norbert. Thanks very much for listening.