Rieter Holding AG

Ladies and gentlemen, welcome to the written results press conference call 2021. I'm Maria, the course call operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Norbert Klapper. Please go ahead, sir.

Thank you very much. Good morning, ladies and gentlemen. I sincerely hope that you, your families, and your teams are doing well. Before I guide you through the key messages, I'd like to highlight what is new compared to our January 27 sales and orders update. There are three major topics I would like to mention. Number one, the market recovery continues. And this is why today we communicate that we expect an order intake in half year one this year, which will exceed what we had in half year two 2020. The second big topic is we expect an operating profit in 2021. And the third topic that we will talk about today is we are ready for the market recovery based on the decisions that we took last year. All right, let's move on to page number three, the key messages. You are all aware that we had a sharp decline in demand in 2020 due to the pandemic. You saw the trough of this development in the second quarter, where we booked an order intake of only 46 million Swiss francs. The market recovery started in the second half of last year. The order intake in the fourth quarter came back to a level of 215 million. As a consequence of the low sales last year, Rita has booked a significant loss, an EBIT margin of minus 14.7% and a net profit of minus 15.7%. I guess we can say today that our crisis management was successful because we see that we are ready for the market recovery. And what was also important was to consistently implement the strategy. We will come to that point later in the presentation. It is not a surprise to you that the board of directors will not propose a dividend payment to the AGM in April. And the last point on my key message list here is the outlook. As I said already, the market recovery continues. We clearly see the recovery in our numbers. So we expect, as I said, a good order intake in the first half year of 2021, which exceeds what we had in the second half year last year. All right, so I'd like to turn over to Kurt for the financial results.

Thank you, Norbert. Good morning and welcome to this call from my side. I'm starting on slide five with the financial highlights. The year 2020 was a challenge for Reiter. We started the year with the expectation that the recovery, which set in in 2019, continues. In the second quarter, COVID-19 changed the situation. The recovery in the business with new machines stopped. The sentiment to invest into new spinning mills or machines suffered. Additionally, the demand in the textile end market slumped with a significant effect on our components and after sales business. Let me highlight some of the key figures on this slide. Sales were at a very low level due to the exceptional market situation. All three business groups suffered. The gross margin decreased from 27.6% to 23.4% or by 76 million. Two-thirds of the lower gross margin was driven by the lower volume. The reminder was due to a low capacity utilization within Reiter. To be ready when the market ramps up, on purpose we did not adapt Reiter's structure substantially due to COVID-19. The EBIT reflects the low gross margin described just now. This negative impact was partly compensated by the cost reduction measures including short-time work and many others. SG&A was reduced by 20 million. R&D expenses, however, remained on the previous year's level since we did not stop our innovation program at all. Please note that previous year's numbers include a non-returning profit of 94.5 million for the sale of the real estate in Germany. Net profit is a result of the just said. In addition, we booked higher net interest expenses of 2.8 million. This mainly due to a non-recurring interest income in 2019. Non-capitalized tax losses carried forward had a negative impact of close to 20 million. The bar chart on slide six shows the effect of the pandemic by quarter. After a solid start in the first quarter and an unprecedented slump in demand in the second quarter hit, textile retailers were forced into various lockdowns. The consumption broke away. Therefore, spinning mills operated at a very low capacity utilization rate. This led to a substantial lower demand for wear, tear, and spare parts in our business groups, components, and after sales. and a low appetite to invest into products of our business group machines and systems. With less than a quarter of the order intake in Q1, the second quarter was a disaster. The recovery set in as early as in the third quarter, still on a moderate level, and accelerated in the fourth quarter to 250 million, even higher than Q1. This corresponds to an annualized number of 860 million, a level clearly above break-even. Slide 7 shows that all three business groups were affected by the slump in demand in the second quarter of 2020. Despite the recovery in order intake in the third and fourth quarter of 2020, the week's second quarter was only partially offset. The business group machines and systems was particularly hard hit by the effects of the pandemic with a year on year decline of 35%. The business groups components and after sales each recorded a 24% reduction in order intake. At the end of 2020, REIT had an order backlog of around 560 million, 60 million above the already high level of last year. This number includes about 200 million for the order from the Cotton and Textile Industries Holding Company of Egypt, booked in 2019 and 2020. The graph on the left side of slide 8 shows the comparison of last year's numbers. Overall, sales dropped by some 25%. All business groups were affected. Machines and systems as well as components were 24% below previous year. After sales, close 27% below previous year. On the right side, you see a half-year 1 to half-year 2 sales comparison. The clear recovery by 25% was driven by the business group machines and systems with 47% growth. A substantial base effect, half year one was on an extremely low level, supported this clear growth. The components business followed a different pattern, with both half years at about the same sales level. In half year one, the sales did not drop, since a considerable order backlog could be converted into sales in Q2. However, in half year two, Component sales were then affected from the low order intake in Q2. After sales grew by 20%. This reflects the continued improvement of the operational rate in the spinning mills during H2. Overall, the sales figures in H2 were also strongly improved against H1, still on a low level. annualized at around 640 million. The bar chart on slide nine shows that with the exception of Turkey and Africa, all regions were affected by the low demand as a consequence of the COVID-19 pandemic. Thanks to the innovative range of products and services, REIT benefited in Turkey from customer willingness to invest and increase sales by 83%, or 55 million to 122 million. In the two important textile markets, China and India, sales decreased by 32%, respectively 49%. In the Asian countries, excluding China, India, and Turkey, compared to previous years, sales fell by 37%. The same decrease of 37% read also saw in North and South America. In the smaller market in Europe, sales fell by 7%, and in Africa, a year-on-year increase of 11%, or 2 million, was recorded. As you can see on page 10, there are three main effects that influenced EBIT compared to previous year and led to this difference of almost 170 million. Firstly, gross margin was 76 million below last year. As I mentioned earlier, two-thirds of this reduction was driven by the lower volume. The remainder was due to a low capacity utilization. Secondly, 95 million non-returning profit from the sales of real estate in Germany in 2019. And thirdly, 20 millions of savings in SG&A due to cost-cutting measures. Please note that at least a part of this reduction is not sustainable. It includes, for example, short-time work, reduced cost for trade fairs or traveling. It is obvious that that these expenses will normalize once the pandemic is behind us. R&D expenses remained on previous year's level since we did not save on our innovation programs as mentioned before. There are five noteworthy points I want to highlight in the balance sheet on page 11. Liquid funds almost remained on last year's level of over 280 million. As in the year before, we managed net working capital to be negative. That means that inventory and receivables could be financed by trade liabilities. Besides an active management of net working capital, Rita could also profit from high advance prepayments from customers linked to the increased order intake in Q4 2020. Between March and November 2020, bank loans in the amount of 130 million with a term of one year were drawn and increased current financial debt. Part of this increase was used to repay the 100 million bond which was due in September and therefore also classified as current financial debt. The 75 million bond issued in August 2020 with its four-year term increased non-current financial debt. Equity decreased by 120 million, and as a consequence, the equity ratio by 11.4 percentage points to 36.4%. The free cash flow on slide 12 amounted to minus 75 million in 2020, reflecting the poor market situation in the business year. Depreciation and amortization remained on the previous year's level and are clearly above CapEx. CapEx were reduced by around 10%. As mentioned, we did manage net worth and capital tightly, hence it did contribute 13 million to free cash flow. The higher tax payments include tax effects from last year's sale of real estate in Ingolstadt. Finally, on slide 13, the dividend proposal already mentioned by the CEO. Due to the loss of 89.8 million at the net profit level in the 2020 financial year, the board of directors proposes that shareholders waive the distribution of a dividend. This is in line with Rita's dividend policy to pay out 40% of the net profit. With this, I hand over the word back to Norbert.