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.

Thank you, Kurt. Let me share a couple of thoughts on strategy implementation with you. On page 17, we put together the cornerstones of Reiter's strategy. to illustrate the impact of our last acquisition and of the Rita campus on strategy implementation. You are familiar with the cornerstones. We look at ourselves in terms of an ambition to be the market leader in short staple fiber spinning systems, number one in premium, number two or three in the middle segment, and the market share of 30% plus. In the premium segment, this is where we want to be number one. Lowest cost per kilo yarn, I already explained how important that is and what we do to achieve it. And the lowest cost per kilo yarn, you can get by a combination of the best machines, the best components, the best digitization, and the best service. All four together make up for a system which... provides the lowest cost per kilo yarn. And obviously with the acquisition of the automatic winder, we added an important machine to this combination, but we also added an important component to this combination. This is Aquatex, the elastomer components which go into the end spinning machines mainly with a strong focus on ring and compact spinning. I told you already how important the ring and compact spinning system is in this market. And I told you about Rita's position. The maximum revenues from the installed base is of course super important for the profitability of the business. And it goes without saying that along with the automatic winder machine, we acquired the service business of the winder on the installed base, which is in the fields. The enabler for all of this together is technology leadership. We have been talking about this a lot of times and it is still true and it will not change. Technology leadership is what is key to achieve the lowest cost per kilo yarn in a spinning system. And this is marked in blue here because the Rita campus will have an impact on this. Technology leadership depends on having the right talent, the right people, who can create technology leadership, who can be innovative and creative at a level that allows you to be the technology leader in a market. And the RETA Campus will attract this talent. Adjacent businesses we do selectively. You know that we have non-woven activities. We also have filament activities and precision winding. filament segment, the filament part of our business has been strengthened by the acquisition of Temco, which is also, which is the third business that was part of the acquisition from Zaura. So we are very happy that we have been able to add this component business to the Rita portfolio. Financial targets, obviously the Zaura acquisition will have an impact on the financial structure and the targets of the company. We will come back to this point when we have the carve out of the business behind us. On the following slides, there is again an illustration of the winding business. To remind you of the numbers in 2018, this business generated under the ownership of SAURA sales of 193 million euros and an EBITDA of 22 million. We have not consolidated it in 2021 because the carve-out is not done yet. We will accomplish it during the first half year 2022. On the next slide, you see again Aquatex and Temco. Aquatex, the elastomer components for the spinning machines, and Temco, which is a component business serving the filament industry. It is two strong component businesses which I'm very happy that we have been able to make these part of the Rita family. To remind you of the numbers, 2018, both businesses together generated sales of 67 million euros and an EBITDA of 12 million. We have started to, as the carve-out is behind us already for these two businesses, we have started to consolidate them. in 2021. We started in December. You see the corresponding numbers here on this slide. And the third achievement in terms of strategy implementation is the RETA Campus. When you come to our place, you see the construction site we have started. We did the groundbreaking ceremony in September, on September 8, and as I told you already, It is absolutely critical for Rita to have this because we need a customer and technology center where our engineers and our people can work together in an environment and an atmosphere of creativity and innovation. And they continue to have access to European technology and, of course, to also attract young talent, which is very important for the future of the company. Let's move on with the last chapter of our presentation, the outlook, on page 22. As we said earlier, we anticipate a gradual normalization of the demand for new systems in the coming months. The reason is basically that the delivery times for new machines and systems have become very long. And it's not only a matter of the delivery times for machinery, I was in Turkey recently and customers in Turkey reported about very long delivery times for new buildings, bottlenecks in the construction sector in Turkey. So it takes you a lot longer to build up the new spinning mill than in the past. It's not only the equipment, it's also other factors, for example, like civil engineering. ITMA 23 is coming closer. There is customers out there. who think about it, okay, if we place an order now and we get the machines in 24, why don't we wait until it might? I heard them saying that already. And of course, we don't know yet what the war in the Ukraine will have in terms of an impact. However, the underlying rationale of the regional shift away from China in connection with the investments into the competitiveness of the Chinese industry is This will go on. We expect this to go on. In addition, we expect the demand for wear and tear parts to remain at a good level. The spinning mills have a high capacity utilization, so we look at this as described in our outlook statement here. For the full year 22, we expect sales around 1.5 billion. The order backlog and the consolidation of the businesses which we acquired from Saura bring us to this number. We also expect the second half of 2022 to be higher than the first half of the year in terms of sales. And we already discussed the realization of sales from the order backlog. It continues to be associated with risks. This is not a secret in relation to the well-known bottlenecks in the supply chain, the pandemic, which is not over yet in some parts of the world, and of course, the recent geopolitical uncertainties. Despite the price increases we have already implemented, the rise in global costs poses a risk to the development of profitability. And this statement tells you that a super, super high priority this year is margin protection. It's a key issue in the current situation. I told you in January, you will see it also on the next slide, that our backlog margins are healthy. But in the meantime, we saw a new wave of cost increases flooding the markets. So margin protection remains a top priority. For components and after sales, it is not that difficult. because the backlog reaches only a couple of weeks into the future, and this helps a lot to synchronize price development with cost development. And I can tell you that this works very well. Nobody loves it, as I said before in one of our presentations, but everybody understands it. In the machines and systems business, the situation is different. The backlog here goes into 23 or even 24. So here we have to work on margin protection in a different way. Our approach is straightforward. We have already increased our prices for more than 15% in the meantime. We work constantly on efficiency improvements to take cost out wherever we can without jeopardizing, of course, the quality and the performance of what we offer to our customers. And we have done one thing which I have to highlight today. We introduced the price adjustment clause in our contracts. This is not common in our industry. I was in Turkey to explain it to customers and the reaction was kind of, it was, let me say it this way, they were surprised. In our view, this is a must in the current situation. We have to have that. So we implemented it. as you would expect from the market leader. So far, the outlook and the margin protection. We are at the end of the presentation. Please let us have your questions.

The first question comes from the line of Dominic Felges from NZZ. Please go ahead.

Thank you. Good morning, gentlemen. I was wondering, you know, I mean, if I look at, although there have been shifts there, but if I look at the markets, I mean, not really any new countries have propped up there. I mean, I was wondering, you know, I mean, there's a lot of talking about deglobalization, you know, in many industries, localization and so on. Is it not or is that not happening yet or will it never happen that new markets maybe will emerge for textile manufacturing especially maybe also in industrial countries. which partly at least have been active in textile manufacturing or is really just all remaining in Asia as before. And related to this question, second one, I mean, is Winterthur really still the right place to do innovation? I mean, or would your new campus not rather have to be in Asia? where the music really plays in textile manufacturing. And if you allow me a third question, I mean, the share price has obviously also for retail come down significantly. I mean, does this mean that we have really seen the best, that the market really is not really expecting much further growth? increase in your business. Thank you.

Thank you very much for the three questions. New countries. No, we see the usual suspects, but what we see is a different mix of the usual suspects, right? We have not seen a new country popping up. We saw A strong increase in Mexico and in Honduras, for example, but that doesn't mean that the industry had not been there before. A brand new country where the spinning industry was not present, we don't see in this regional shift that we explained. But the mix of countries, the weight difference, in the distribution of order intake, which will later lead to the mix in the installed base, is fundamentally different from the past. What I have to say is I don't expect the spinning industry to come back to Central Europe. I guess you wouldn't be competitive in Central Europe if you tried to run a spinning business. The European textile industry will be nurtured by countries like Pakistan, Bangladesh, particularly Turkey, Northern Africa to some extent. This is where the yarn will be produced for the European consumers. The same way Central America will be the hub for the yarn production for the U.S. consumers. Winterthur is the right place. Of course, Winterthur is the right place. As I explained, Rita's ambition is to be the technology leader, and in order to be the technology leader, you need to have access to latest technology from other industries, from other sectors. Latest technology is absolutely key, and make this technology available to the spinners of the world. And this is what we do in Winterthur, and this is absolutely the right place to do that. And the share price, I cannot comment on the share price. I guess what we saw in the last couple of years, particularly last year, is that Rita has made a major step in strategy implementation. We see the benefits of the strategy implementation by the order intake that I explained to you. So, yeah, I guess the share price will follow. That is what I would expect.

Can I just add a follow-up question there? You were talking of North Africa as well as a market. I mean, do you mean maybe Egypt or which markets could become more relevant, which countries?

Egypt is on top of the list for the North African countries where investments into spinning equipment go at the moment.

Why don't you come for an interview, please?

This is your third attempt. I guess that is not fair to the other participants.

Okay, thank you. That's fine. Don't worry. It would have been a very short question.

Yeah, yeah, of course. And then comes another short question. No, no, no. Give me a call. Let's talk about it on the phone. That's fine. Okay, thank you. Okay, good.

The next question comes from the line of Walter Bamert from CKB. Please go ahead.

Good morning. I would ask three questions, if I may. The first on horses, the second on sales, and the third on components business. Does the start in order intake in this year confirm that the fourth quarter decline was just typical seasonality? Or how did this year start in terms of order development? Then when it comes to sales, could you help me with the guidance for the second half relative to the first half? Is that increase due to your visibility in the order book or is it because you expect component shortage to go away or is it that you ramp up capacity? For me, it would be more helpful if you tell me if you expect sales in the first half to be above second half of last year. or if you see there's something that slows it down or if you say we have more capacities in the beginning of this year so we can do more sales also in the first half relative to the second half of last year. And then in the components business, perhaps I also come for an interview because I would like to know who are the clients. Is this the competition or are these really yarn producers? In which regions are they getting, let's say, is there an overproportional representation of the components business in certain countries? And is Saurer, for example, still a client of you or was that related to the businesses you took over from them?

Okay, three questions. The start into 2022 was good. We are satisfied with what we see, with what we saw in January and February. What we saw in January and February underlines that our expectations in terms of the market development is about right. Sales first half year this year in comparison to the second half of this year, well, this is basically a matter of the order intake and the delivery times and the lead times. That is the underlying rationale here. It depends on what orders you take when and when you supply. That is the big driver here for the difference between the two half years. And the components business, the biggest customer of our components business is the spinning mills. Are the spinning mills around the world who buy the wear and tear parts from these components units that we have? Of course, there is also a portion which goes into our new machines. And there is even some which goes into machines of competitors. But the by far biggest customer segment for the components business are the spinning mills around the globe.

Great.

Yeah? Good.

Further questions?

The next question comes from the line of Christian Arnold from Stiefel. Please go ahead.

Yes, good morning, gentlemen. Also have a of questions maybe starting with also the outlook and a follow-up question we just here before this 1.5 billion sales you expect I mean to what extent have you included the sour activities I mean of course architects and Temco will be fully included What about the automatic winder business? You expect that to be consolidated in the first half. Does it mean that you have included some half of the business of the 193 million into that 1.5 billion?

Well, I'm not smart enough to answer this question, Christian, to be honest. The carve-out is not done yet. We are still talking to Soura about the way we take over backlog or they continue to manage backlog and so forth and so forth. It's too early to say that. I guess we will be in a position to make a statement on this when we talk about the first half year results in July.

So the 1.5 billion excludes the automatic wind business?

No, it doesn't. There is some of it in, but it's a rough estimate, which is not a number that I can share with you. Okay.

But that would also explain that H2 will be higher than H1.

That is also a part of it, yeah, for sure.

Okay. The prepaid considerations, I mean, you booked 192 million in the balance sheet, also from these non-consolidated solar activities. A rough guess how that will be divided into tangible assets, intangible assets?

Christian, are you trying to fill up your spreadsheet here or what?

I can take this and I think you asked this question before. And it really depends on this purchase price allocation, depends on the backlog Norbert just described. So if you want to make a guess for your spreadsheets, just take 50-50. I cannot come up with a better number at the moment. Okay.

Okay. Good. And I can also take 50-50 for the Egyptian order that it will be booked in 22 and 23? Okay.

We will start to ship this order in the second half of the year.

Okay, so then it's rather less than 50 this year, more than 50 next year.

That depends on a couple of things, including the progress in the buildings in Egypt.

Okay, last question. haven't given us any guidance for the profitability for 2022. It would be a fair assumption that profitability would go towards, let's say, a level which you in the past had as a target with 1.3 billion sales at 10% EBIT margin. I mean, It goes into that direction, maybe not there because you have higher costs, of course, you have some additional expenses coming from the acquisitions, but let's say towards a high single-digit EBIT margin number, that would be something to be assumed. Is that a fair assumption?

Christian, I guess you watched yesterday, for example, the nickel price, right? 44% plus on one day, I will not give you a profitability outlook today. I guess it would be wrong to do that. Many, many things can happen during the course of this year. It is about the ability of Rita to manage them, to master them, and to generate profitable sales from the huge backlog that we have. And I shared our thoughts regarding margin protection with you. I guess this is straightforward, but many, many things can happen based on the development that started on February 24. And so we cannot give you a profitability outlook today.

Okay. Fair enough. Thank you very much.

Thank you.

The next question comes from Sebastian Fergel from UBS. Please go ahead.

Hello, good morning. Can you hear me?

Yes, we can. Hi.

Perfect. Many thanks. I got a couple of questions on first on the repricing of previous orders. Is that something what you actually can do? Because I mean, you said you have already increased the prices for orders coming in. But if you have some orders in the backlog, is there a chance to make a repricing of those existing ones? That would be my first question. The second one is on the adjustment clause that you introduced also in your description of what is going on at the moment. What sort of cost is covered there? Is it like labor cost, energy cost, or is more for general adjusted that is covering a lot of individual ones? And then last but not least, you mentioned shortly the revenues and the EBIT contributions or EBIT and the operation profit and the sales number for the winder and for the components in 2021. Would you mind repeating them?

Sorry. For the first one, I understood repricing. You can always try to negotiate in terms of repricing, but this is something which of course depends on on your willingness of the customer to follow you on that if you don't have a corresponding clause in the contract. This is why we introduced the price adjustment clause and the logic of the price adjustment clause is that it covers 70% of the value of the order, which is material cost plus a couple of other things. That is the idea. So the cost of value creation, basically value added. And the last question I didn't understand. What do you mean by the numbers, 21?

Yeah, I saw that you referred to something like 193 million for the wind in terms of sales and components and 67 million in 2021 from Zara.

No, this was 2018.

All right, okay.

2018. So in 2018, the Winder business, including the service business, generated sales of 193 million euros and an EBITDA of 22 million. And the Aquatex and Temco business generated 67 million of sales and an EBITDA of 12 million. This was in 2018. This is the point of reference for us because this was the last year which with let's say normal market conditions. That's why we look at 18.

Great, many thanks. And just one quick follow-up. In terms of integration cost on the server transaction, what do you think could be a reasonable assumption for 2022 there?

So you can see in the annual report that we had last year 4.4 million on this. And now we say we're going to integrate in the first half of the year. So The same we don't know yet, maybe 50% is again a good guess.

Any thanks?

The next question comes from the line of Andrew Gibbs from Autos Capital Management. Please go ahead.

Hi there. Thanks very much for taking the questions. I guess this is more of a strategic question or structural one, but if I look at that order backlog, as it's been building. Obviously, there are a lot of moving parts to that. In the sales that you've currently shown, you're indicating that there's some mix effect. And I guess the question here is, does that mix effect, if you're shifting production out of China, is the first thing you do to put a lower mix product, if you're one of your customers, to build up the base load? And therefore, is premium product a later cycle event if you like, in this dynamic. So that's question number one. And then question number two is, you gave some indication of the, well, the extent to which product was being shifted out of China and suggested there was more to come. In your discussions with customers, can you get any sense of how, what their intentions are on this front? So the 23 million we divide by five, divide by two, and we've done, as you said, one and a half to two million, billion. Where do you think that settles? At half of a half, or what do you expect? Thank you.

The mix effect, that depends on what type of systems we sell. There is a couple of systems, a couple of machines in our systems which... which have a very favorable gross margin and others which have a less favorable gross margin. This is where the mixed effect comes from. There's no cyclical element to it.

But does the premium product have a higher gross margin, generally speaking?

Yes, of course it does, yeah.

Yeah, and therefore the question here, I guess, is does premium product, if you're building up new capacities, in countries that are taking over the substitution effect, is the first thing you're doing is filling volume and later you fill with premium product.

No, no, no. Or you'd have it all at the same time. No. Customers who are investing outside China invest in premium. Okay. Yeah. There is no cycle in terms of building up spinning industry in a country like Honduras or or Egypt or Bangladesh or Pakistan. Customers who decide to invest in this country invest in premium. And the settlement, where will this point be from the 23 million down to what level will it go? Well, this is hard to tell. We don't know. What I said is I don't expect it to stop at the 1.5 to 2 million tons, which we've seen so far. I mean, you could even go further and ask yourself, okay, let's assume it goes down to the domestic demand, which would cut it in half. Why would the Chinese market be supplied with yarn that will be produced domestically? Yeah. I mean, in Europe, this doesn't happen anymore. All the yarn comes from elsewhere. But this is speculating. What we saw so far is 1.5 to 2 million, and we expect it to continue.

Okay. And I sort of interrupted you. Sorry, when you were just saying about the different mix, some of your products have a very high gross margin contribution. Right. What is it about them? Is it a market share situation you have in those products that creates that price?

Separate discussion, separate discussion. Let's not go too into the details of our product portfolio here. If you want to talk about that, we are always available for a discussion.

Yeah, no problem. Thanks.

Good, thank you.

The last question comes from Mark Stainjohn-Webb from Quero Capital. Please go ahead.

Yes, good morning. Just a question to try and understand whether the rise that you're talking about in material costs and in component costs, what is the different impact whether you are producing your premium machines or mid-range machines compared to maybe lower-end machines of the competitors? Could one presume that the impact is less on premium machines and might actually tempt some clients to buy premium machines rather than lower-end machines?

You mean the development of the material cost for our machines or for our customers?

The material costs for your machines, i.e. a machine made of steel, the steel price rises, is the same impact for a low-end machine that costs a low price as for a high-end machine. and therefore the overall impact might be less on the premium machines.

The premium machine has a lot of electronics and semiconductors and that tells you the story.

Thank you.

There are no further questions from the phone.

All right. Thank you very much for the lively discussion. And as I said, for those who have not been able to place their third or fourth or fifth question, we are available to continue this conversation on a one-to-one basis. Please feel free to contact us, and we will answer your questions in a one-to-one. Thanks a lot, and I wish you a good continuation of the day, and let's hope for peace in Ukraine. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.