Rieter Holding AG

Ladies and gentlemen, welcome to the Reuters Results Press Conference call 2022 Media and Investor. I am Paul, 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.

Much good morning, ladies and gentlemen, and welcome to Reuters Media and Investor presentation on the results of 2021. we have prepared four topics for this presentation, as usual. We start with the key messages, including a couple of additional insights on the record order intake we booked last year. This section will be followed by the financial results and a follow-up on strategy implementation. And we will close the presentation by giving you an outlook for 2022. Before we start with the key messages, please allow me to express our deep concern about the war in the Ukraine. We very much regret the pain and suffering of the Ukrainian people, and we sincerely hope that this conflict will be resolved peacefully as soon as possible. From a business perspective, Rita is not affected directly by the war. Neither the Ukraine nor Russia or Belarus are textile countries. Rita only has a few customers in this part of the world. It is too early to assess the impact from cost increases, raw materials, energy, and transportation on Rita's business, and the same applies to the assessment of potential consequences on Rita's customers. Let me come to the key messages. on page 3. Order intake 2.2 billion Swiss francs last year. We already reported this number in January. Today I will give you some more background information on the rationale behind this record and the way forward. Sales of 969 million Swiss francs despite the bottlenecks in the supply chains as reported in January. Rita demonstrated the ability to generate profitable sales from the backlog in a difficult situation. EBIT margin of 4.9% of sales in January. We gave you a range between 4.5% and 5%. So we're at the high end here. Net profit as a consequence of 3.3% of sales. milestones achieved in strategy implementation. We will talk about the acquisition we did last year again and about Rita Campus. More details in the third section of today's presentation. We propose a dividend to the AGM of four Swiss francs per share, which is a payout ratio of 59% of net profits, which exceeds our dividend policy significantly. And the outlook, which we will discuss at the end of the presentation, including our thoughts on margin protection, a major issue for 2022. On page four, we have the comparison of the order intake by half year, 1920 and 21, which illustrates the record that we had in 2021. All three business groups contributed to this development and you will find the details on the 2021 numbers in the annex of this presentation. The order intake has been supported broadly on a global level. The orders came primarily from Turkey, from India, from Latin America, from Uzbekistan, from China and from Pakistan. And there is two elements in this record order intake here. There is a catch-up effect from the two prior years, and there is a regional shift in demand, which I will explain a little more in detail today. And if you follow me on the next slide, you see that the record order intake is based on the combination of three factors. There is a market dimension, there is a RETA technology dimension, and there is a RETA system dimension to it. And in combination, they led to the record that we were able to achieve. This slide here highlights the market development first factor, which we call the regional shift in demand. And the rationale is the following. The staple fiber meal consumption in China 2018 was around 23 million tons. Out of this, 50% were consumed by the mills for domestic demand. In other words, roughly 50% were exported. And this development, this proportion changes at the moment. You need to know that for the production of 1 million tons of yarns per year, you have to invest in spinning equipment roughly 1 billion Swiss francs. And what we saw last year in the order intake of the industry is that orders for investments have been placed outside China, which represent a production capacity of 1.5 to 2 million tons per year. This is our estimate based on the numbers that we have analyzed. So out of the 23 million tons, 1.5 to 2 million will be taken out of China and will be produced outside China as soon as the new equipment will be operational. So this is not a lot when you look at the export ratio or the domestic demand ratio out of the 23 million. This is why we expect this development to continue. At the same time, I have to highlight on this slide that the Chinese spinning industry invests in its competitiveness. So there is two developments which are important here. The first one is that the industry is leaving China. And I gave you a flavor on the amount of capacity which has been invested outside China last year. And at the same point in time, China invests into the capacities which will remain in the country. On my next slide, I have again the slide that we looked at in January, which illustrates what I just said. You see here the order intake comparison in two boxes, the average 2020 11 to 2020, which Rita booked the ranking by country. You see that China was number one, Turkey number two, India and Uzbekistan and the U.S. followed. And in 2021, we had a different picture. We had Turkey on number one. We had India on number two. We had Uzbekistan on number three, China number four, and Pakistan, new on the list, number five. You see the different order of magnitude also. The average over the last 10 years was close to 950 million. Last year, we broke 2.2 billion. If we considered Latin America as a country, it would have been number three on last year's list and number five on the 10-year list. So we see the regional shift here very clearly. And based on the rationale that I explained to you on page five, We are of the opinion that this is not over yet. The second factor is on page number seven. The second factor which facilitated this record order intake is Rita Technology, the blue box. And to better explain this, we need to look into the mechanics of this business, of the yarn business. Yarn is a commodity. More than 90% of the market is a commodity market. And the target for a company which is in this business, a spinner, is to achieve minimum cost per kilo yarn at a given quality level. The key cost elements in the cost per kilo yarn are obviously raw material, energy, labor, depreciation of the equipment. And this is what Rita described. does. Rita provides the technology with the lowest cost per kilo yarn. This is our goal, particularly in the area of innovations. Lowest cost per kilo yarn is what a premium supplier provides. And it goes without saying that in the current situation, when we look at energy costs, but also raw material costs, this value proposition is very, very important. even more important than in the past. When we move on to page eight, we can look at the third factor in this combination of things that led to the record. This is the system approach Rita is pursuing. What you see here is the ring and compact spinning technology is the most popular technology in this market. It represents more than 80% of the global capacity. And Rita is particularly strong in this segment and has invested in this market segment over the last couple of years. And by these investments and innovations, we improved the system attractiveness, the Rita system attractiveness. In terms of machine performance, just give you two highlights here. Two major machines in this system setup is the card preparation machine and the comba, which takes the short fibers out. And we presented two new machines at ITMA in Barcelona in 2019. And we sell a lot of them. We invested in automation of the system. You might remember the RoboSpin, the little robot which repairs the arm brakes on the ring spinning machine. Very important and it is a USP. There is no comparable product on the market. The digitization of the system is also very important. We have the RETA digital spinning suit essential, which is very important to take the inefficiencies out and limit the number of operators that you need for the mill. And the flexibility of the mill is important. We presented in Barcelona in 2019 our compacting devices, which help you to turn a ring mill into a compacting mill back and forth very quickly and we also sell a lot of all of these products and they helped us to improve the competitiveness the attractiveness of the system and this is the third element the third factor which facilitated the record order intake for Rita and of course we did the acquisition in the only machine which was missing in this setup for Rita in the automatic winder. So in summary, we can say favorable market conditions in connection with the right technology and the right system offering. This combination led to the record order intake. On page nine comes an important point. Order intake is great, and order intake and the resulting backlog are, of course, a precondition for success, but push comes to shove when all the backlog has to be turned into profitable sales. In the second half year, last year, we booked 569 million sales despite the bottlenecks that we are all aware of. Material supplies, not only semiconductors and electronics, many other things were difficult to get on the market. The freight capacities we discussed earlier And the slide illustrates what the Rita team achieved in 2021, despite all these challenges. And, of course, this underlines that we will also be able to master the new challenges successfully, which we will see in terms of turning all the backlog into sales in 2022. Again, the details on the sales numbers for 2021 we have in the annex. Right, so far the key messages and the background information on the record order intake and the conversion of backlog into sales. And I now hand over to Kurt who will guide you through the financial results. Thank you, Norbert.

Good morning and welcome also from my side. I start on slide 11 with the financial highlights. After the tough year 2020, 2021 was a different challenge. The start in the year was still suffering from the low orders of the previous quarters. The recovery was first seen in the after sales and components business, then followed orders for single machines and later on for full systems. From Q2 onwards, orders were on a very high level for the rest of the year. With the strong growth in orders, different challenges came. External bottlenecks, namely in electronic components like inverters or controllers, and in logistics, prevented Rita from having higher sales volumes in 2021. Let me now highlight some of the key figures on this slide. The gross margin recovered from a very low 23.4% to 28.5%. mainly due to better capacity utilization in our operations. The EBIT reflects the recovery of the gross margin described just now. This positive impact was partly consumed by higher cost. Roughly half of the cost increase is volume related. Another third is due to a base effect. In 2020, special COVID-19 measures for cost savings were implemented. These one-offs apparently did not repeat in 2021. Free cash flow turned to positive due to the operating recovery, as well as due to the positive development in net working capital. The net working capital was already slightly negative in 2020 and is now at 80 million negative. This means payables and customer down payments Excel inventories and receivables by 80 million. The high down payments from customers based on the high orders were the main driver. Despite the high free cash flow of 128 million, net liquidity of 41 million turned into net debt of 162 million. This decrease of around 200 million includes 350 million cash outflow for the acquisition from Saurer. As you can see on page 12, there is one major effect that influenced the EBIT compared to previous year and led to this EBIT improvement of more than 130 million. The gross profit improvement was on one side driven by higher volumes plus 93 million gross profit On the other side, by margin improvements in all three business groups, plus 73 million. The mixed effect, more sales in the lower margin machine and systems business reduced the gross profit by some 23 million. Parts of this gross margin improvement was consumed by higher costs. As mentioned before, roughly half of the cost increase is volume related. Another third is due to a base effect. In 2020, special COVID-19 measures for cost savings were implemented. These one-offs, like short-time work, lower costs for trade shows and traveling, etc., did not repeat in 2021. The other result added in total 23 million net to the improvement. The highest contributors to this effect were high restructuring expenses in 2020 that did not repeat in 2021. The rest of the improvement consists of several smaller items described in the annual report. The structure of the balance sheet on slide 13 changed mainly due to the acquisition from Sauer mentioned before. Various positions were directly or indirectly influenced by this acquisition. The increase in non-current assets reflect the €300 million acquisition. Partly the acquired assets are shown on the property plant equipment, intangible assets and goodwill. The reminder is included in prepaid considerations. The second bond of €100 million that was issued in August 2021 is shown on the non-current financial debt. This explains a major part of the increase. The increase in current financial debt includes additional credit lines that were drawn in connection with the financing of the said acquisition. Also, equity increased in Swiss francs by 46 million. The equity ratio did decrease to 27.6%. This is due to the fact that the acquisition was fully financed without additional equity by existing cash, additional credits, and the 100 million bond. The further decrease of net working capital is not related to the acquisition. As mentioned before, it was driven by higher down payments from customers based on the high order intake. The free cash flow in slide 14 amounted to 128 million. This is more than 200 million above the low free cash flow in 2020. The two main drivers were the net profit improvement of 120 million and the positive net working capital development. Included in the net working capital change are the increase in advance payments from customers due to the high order intake. Depreciation and amortization are balanced with the CAPEX and remained at around 37 million. CAPEX was 10 million above the low previous year. This reflects a certain catch-up effect, as well as some investments in operations to eliminate internal bottlenecks. Finally, on slide 15, the dividend proposal already mentioned by the CEO. Based on the profit of the year, the board of directors proposes to the shareholders a dividend of 4 Swiss francs per share, or 18.7 million in total. The payout of 57% of the profit is clearly above the minimum payout of 40% stated in Reiter's dividend policy. With this, I give the word back to Norbert.