Rieter Holding AG

Ladies and gentlemen, welcome to the semi-annual report media and analyst conference call. I'm Moira, 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 Dr. Norbert Klapper. Please go ahead, sir.

Thank you very much. Good morning, ladies and gentlemen. Thanks for being with us this morning for the presentation of Rita's half-year results. I jump right away on page two where we have summarized the key messages. In the first half of 22, Rita booked an order intake of almost 870 million and we have an order backlog of more than 2.1 billion Swiss francs. Sales, we booked 620.6 million sales. sales could have been significantly higher. We will talk about that today because we had pre-produced deliveries in the three-digit million range, which we needed to postpone until the second half of 2022. EBIT came out at a loss of 10.2 million and a net result of minus 25.2 million. And the three major reasons are significant cost increases, which we could not compensate, additional costs in connection with the compensation of material shortages, mainly development costs, and acquisition-related expenses. It goes without saying that this loss is way below our expectations and ambitions. We have launched an action plan to increase sales and profitability in the second half of 2022. Two main pillars are important here. We have a program to compensate cost increases as much as possible and of course also a package which is supposed to secure sales realization from our backlog in the second half of 2022. We also have news today on the RITA site in Winterthur. We have started the sale of the remaining land here in Winterthur where we are today. And last but not least, we have an outlook. We will give you an outlook for the second half of 2022. I move over to slide three, which shows you the order intake development. Order intake without acquisition is significantly above the five-year average. You see this in my slide here, five-year average, 570 million. And without taking the acquisition into consideration, we have been close to 700 million in the first half year 2022. The reason for this development is the regional shift of demand and the success RITA has in this environment. The regional shift of demand continues. There is two dimensions to it. There is investments in spinning capacity outside China, and there is investments in the competitiveness of the Chinese spinning mills at the same time. Both come together, both coincide. This is what we see in the market, and Rita has set up the right way to benefit from this. However, we expect a normalization of order intake, which will be driven by the long delivery times of the equipment suppliers and the global challenges that we all know about. COVID is still there, inflation and the impact, the potential impact on consumer spendings and on financing of investments. That is the important things that we are looking at today when we talk about challenges. The order backlog at a record high level of 2.1 billion Swiss francs and the cancellations at a rather low level, which tells us that our customers hold on to their investment projects. They see the opportunity which will arise when the markets recover. On the next slide, page number four, We give you an update on the reasons where the success in the market is coming from. You see the first block here under the light green headline market. We already talked about that. This is the regional shift which continues in the spinning industry. The investments outside China in combination with the investments into the competitiveness of the Chinese mills which are supposed to stay in China. We also have an update on the country ranking on the next slide. I will come to that in a minute. The second issue is, of course, as important, and this is Rita's technology, our technology offering, which targets at the value proposition of the lowest cost per kilo yarn, which is what our customers are looking for. This is obviously the right answer to the current energy cost challenge that our customers are having today. The technology leadership in terms of energy consumption of our machines is very important in this environment and it gives our customers a competitive advantage that we can benefit from. And we also discussed the system dimension of this boom of the success of Rita in the market. You know that we have completed the ring compacting system by acquiring the automatic winding machine. The order intake for complete ring and compacting systems gains traction. The completion gives our customers a competitive advantage, and this is also true for us, in particular newcomers. see the benefit of buying complete systems from RETUS. And the regional shift which we experience at the moment implies that there is a relatively high share of newcomers in this business. I'm coming to slide number five. As I promised, this is the country ranking. In terms of order intake, you see on the left-hand side what we had over the last 10 years in 2011 to 2020, China being number one, followed by Turkey, India, Uzbekistan, and the United States. We already talked about the financial year 21 earlier. You see that the picture has changed, Turkey being number one, India, Uzbekistan, China, Pakistan, USA no longer being on the list. And we have the same top five countries we had in the first half year of this year, but the ranking changed a little bit. India became number one. And this was driven by the automatic winder orders that we sold in India. So India number one, Turkey number two, China, Uzbekistan, Pakistan. If the Americas were a country, they would have been on number three on that list. That tells you that the regional shift not only takes place in Asia, It also takes place in Central America. Customers who are investing in Central America are targeting the U.S. market. On the next slide, we have a little update on our last exhibition, on our last trade show, which took place in June in Istanbul. And the discussions we had in Istanbul confirmed the market sentiment that we had heard before. from customers. It was the first time that we presented the automatic winder under the Rita brand. And customers told us that the gold rush in the spinning industry is somewhat over. However, they hold on to their investment projects. They are confident that investments will pay off when markets recover. This is why we see such a low cancellation number. Page number seven, sales. As I said already, my sales grew significantly compared to last year. However, sales could have been a lot higher. We had to postpone shipments, pre-produced deliveries in the three million digit range to the second half of the year due to missing material. And the material was mainly missing as a consequence of the Shanghai COVID lockdown in March and April 2020. the Shanghai COVID lockdown led to a situation where many of our suppliers were not able to ship what we had ordered to our plants, in particular to our Chinese plant, and at the same time the port of Shanghai was congested, so shipments did not go out. You can see an indication for the order of magnitude of these pre-produced deliveries which we had to postpone in our inventory build up between December and June this year. We built up inventory of more than 140 million. We have launched a program to catch up on sales realization and the actions are in place. I'm coming to the third reason for the disappointing results. disappointing profitability on page number eight. It illustrates the margin deterioration. And the slide says the following. On June 30 last year, machines and systems, retail machines and systems had an order backlog of 959 million. Over the last 12 months, we realized sales, mainly from this backlog, of roughly 755 million. Between April last year and April this year, cost increased significantly. I have two cost indicators here on that slide which tell you what happened. It's the cost per tonne aluminium and the container freight rate index Shanghai Rotterdam. You see the dramatic cost increase and as a consequence we had to buy material and freight at costs which were significantly above what we had calculated. when we sold the contracts. Kurt will show you the impact on our numbers. And obviously, we have been working on countermeasures for quite some time. You see here what we have done. Of course, the task here is to synchronize price and cost development. This is why we have increased prices in the meantime by 20%. This works very well in the components and after-sales business where we could protect our margins. But for the reason that I mentioned before, it did not work in the first half year for our machines and systems business. Price increases, price adjustment clause for delivery times which exceed one year. Everybody hates it, but there is no way around it. We continue to gain traction with this price adjustment clause. More and more customers accept it, but we have to protect our margin for the future, and we have to insist on this clause, which gives us an extra payment from our customers in case inflation goes on between signing a contract and shipping the material more than one year later. We are in the process of renegotiating the contracts which we have on board. This is, of course, also a painful thing to do. But again, we all know, everybody in the business knows what happened over the last couple of months. So there is a need to do that. And we are in contact to our customers to see whether we can come to an agreement here. And if there is a chance for cost savings, we will obviously take it. Having gone through the margin deterioration picture, I'd like to hand over to Kurt for the key figures of the first half year.

Thank you, Norbert. Good morning and welcome from my side to this call. I start on slide nine with the financial highlights. The first half of 2022 was characterized by a continued high order intake and a significant increase in sales. The order backlog is at a record level. This success in the market demonstrates Reader's technology leadership that was completed with the strategic acquisition of the Winder business. Despite higher sales, the significant increase in material and logistics costs, as well as the expenditure incurred for the acquisition, resulted in a loss. Let me highlight some of the key figures on this slide. Although sales were up more than 50% compared to last year, the gross margin was only increased by 5.4 million. The gross margin decreased from 31% to 21%. Partly because of a negative mix effect, higher gross contribution of the lower margin machines and systems business reduced the margin by 15.8 million. But more important, the margin deteriorated due to the cost increase that could not be transferred instantly into higher prices. EBIT reflects this deterioration of the gross margin. Additionally, two effects impacted EBIT. Acquisition-related costs as well as certain cost increases mainly related to the shortage of material and increased volume. Net profit includes, besides the usual tax and financial result, a one-off charge of 8 million related to the acquisition. When Reiter paid the purchase price back in August 21, the euro exchange rate stood roughly at 1.08. At the moment of the first consolidation of the Winder business in March 22, the exchange rate was at 1.04. This reduction of the euro exchange rate led to this 8 million effect, which is, by the way, not cash relevant. The free cash flow was negative, mainly due to the inventory build-up of 141 million in the reporting period. The inventory increase is related to two factors. First, the high volume and order backlog requires more material, and second, that postponed deliveries due to the shortage of material and logistics. However, despite this increase, networking capital remained negative. In other words, realtor inventory and receivables are fully financed by down payments and payables. Last year's net liquidity of almost 100 million turned into a net debt of 237 million. This decrease of more than $330 million includes $350 million cash outflow for the acquisition in 2021. The acquisition was completely financed by existing cash and additional debt. And finally, liquid funds on the balance sheet remain strong and are above $190 million. Looking at the graph on page 10, there are obviously three factors that contributed to the EBIT reduction from the plus 9 million last year to minus 10 million in the current year. Deterioration of gross margin. Assuming the same gross margin as last year, the additional sales of 220 million would have generated an additional margin of 49.4 million. A negative business group mix effect more gross contribution of the lower margin machines and system businesses, reduced the margin by 15.8 million. But more important, due to significant cost increase that could not be included instantly into price adjustments, the margin deteriorated. Altogether, this effect amounts to 32.5 million negative. Increase in structural cost. The increase in structural costs includes additional costs for compensation of the material shortage. Although structural costs are fixed costs in theory, there is always a volume-related component. These two factors explain the major part of the increase in structural costs. Acquisition-related costs consumed 11.2 million of the margin. These costs include 2.4 million transaction costs the net result of the operational business, as well as the effects from the IFRS acquisition accounting. The structure of the balance sheet on slide 11 did not change dramatically, despite the first time consolidation of the acquired finder business at the end of March 22. Liquid funds remained at high level above 190 million. Net liquidity decreased by 75.1 million, mostly related to the increase of networking capital, namely inventories. This increase in inventories by more than 140 million in the reporting period includes postponed deliveries in the three-digit million range. Networking capital, though, is still negative. I expect a substantial decrease once orders are fully delivered and inventories cleared. The decrease in shareholders' equity by 68.8 million is related to three major factors. The negative net result of the period of 25 million, the 18 million dividends paid in April, and negative currency impacts from the translation into Swiss francs. With this final remark, I turn back the work to Norbert.

Thank you, Kurt. I'm now on page 12 to make you familiar with the action plan that we have launched, but because obviously it is our target to make half year two significantly better than half year one. The two building blocks you see on this slide, compensation of cost increases and secure sales realization. Compensation of cost increases, what are we doing? We continue to implement price increases. So far, as I said already, we did across the board roughly 20%. If we see that the inflation continues and the producer's price index continues to go up, we will implement further price increases. The margin improvement in our backlog is obviously a priority. The renegotiations with customers have started And the cost reductions that we are looking for wherever possible, that goes without saying that we are doing that. The second block here to secure sales realization, what are we doing? Close collaboration with key suppliers. Although many of our key suppliers cannot fulfill our demand, we work together with them to get the maximum from them that we can have. We focus on electronics, like many other companies, and we have an efficient crisis management set up with our key suppliers to make sure that we get as much as possible based on their situation, on the situation they have with their suppliers. And, of course, we are developing alternative technical solutions to substitute missing material and to increase the flexibility in terms of sourcing The rollout is progressing. We have a significant amount of alternative technical solutions, particularly in electronics, in the field already. They are working very well. Customers are happy with it. So this is in the making. And the next slide, page 13, explains what this is all about. You see here where we are coming from with our control systems, the programmable logical controller PLC, which is part of every machine. We are coming from a situation like many other companies in the machinery and equipment industry that our sourcing strategy was built on strong partners and who supplied a customized solution in order to keep cost at a minimum. That was the rationale behind this sourcing strategy. But things have changed, so we are moving towards a different setup. We continue to work with our strong suppliers, obviously. But in addition, we move towards standard hardware and software instead of customized hardware and software, and the modular design, which replaces the customized and fully integrated design that we had in as some areas before. This will enable us to buy from different sources, from multiple sources, so it increases our flexibility. It improves the security of supply. The problem of security of supply in electronics will not go away very quickly. We don't believe that. So we invest a significant amount of development money into this change that is illustrated on the slide. which I just mentioned. We're coming to the RETA site in Winterthur. On the next slide, you see our beautiful site here with the River Törs in front. The Board of Directors has decided to begin the process for the sale of the remaining land. You know that RETA is in the process of building a new place for our development and technology center and a little administration building. This is where Rita will stay in Winterthur, and the 75,000 square meters of land which Rita will not need in the future anymore will be part of this transaction. The piece of land is very attractive, and we will see whether the market responds correspondingly. I'm coming to slide number 15, the outlook. We already discussed earlier this year that we expect the demand for new systems, for new machines to normalize further. We talked about the drivers also in this call. The capacity utilization of the spinning mills is still on a good level, so we don't anticipate the demand for consumables, for wear and tear and spare parts. will be at a different level. We expect this business to go on like we have seen it in the previous months. For the full year, we expect sales around 1.4 billion. In March, we expect 1.5 billion. We have changed this due to the fact that we see the challenges in the supply chains, global supply bottlenecks, which are still there. So 1.4 is our expectation. And it is clear that sales realization is, of course, associated with risks. We all know about the current situation, for example, in terms of energy supply that we have potentially in front of us And we have seen the impact of the eight weeks COVID lockdown in Shanghai. And so there is a risk here, which we have to mention. Despite the higher sales, we expect evident net result below previous year's level. We don't think we can fully compensate the cost increases in materials and logistics. The additional cost in development for the compensation of material shortages and the expenses in connection with the acquisition. Despite the price increases which we implemented already and which we are prepared to continue to implement, the global cost increases continue to pose a risk. And we are convinced that the underlying trend is still intact, the regional shift of demand that we talked about a couple of times already, We see it in our numbers in the first half year again, and Rita is well positioned to benefit from this trend and from the exceptionally high order backlog in the future. Thank you very much for your attention. We are open for questions now.

The first question is from Walter Baumert from ZKB. Please go ahead.

Good morning, everybody. I noticed that also the after sales margin and the components business margin are quite compressed despite much higher volumes. Could you share with us if you attribute that to supply chain issues, pricing, or is there an other effect that we should consider? That's my first question. And the second is regarding to cancellation. I think about 100 million. Do you account for that in the order intake as a negative order intake? And could you give us some color on why and where these cancellations happen?

Yes, thank you very much for the question. So the profitability of after sales and components is okay from a pricing point of view. We have been able to implement price increases along with the cost increases. What we see in the profitability is acquisition related. Both business groups have their share of the acquisition. After Sales has the after sales business of the winder and Components has Temco and Aquatex. This is what we see in the numbers here.

And these are temporary issues to a large degree which are not expected to stay to the same degree in the second half?

Yes, we will of course have for some time a PPA, as you would expect. Over time, PPA will go down and all three businesses are profitable from an operational point of view. After sales business for the winder is profitable, Temco is profitable and Aquatex as well.

Maybe I can add, initially this amortization of intangible assets from the acquisition. This is at the beginning very high, and then after a year it goes to a certain level, and then it runs out over the next 10 to 12 years, but on a lower level than this year.

Okay. And the cancellations, yeah. What you see in our numbers in the next figure, yeah? So we booked, the cancellations were booked out. You see a net figure here, 2.1 million is after the correction. And I can say from personal experience why these cancellations happen. I talked to a customer in Turkey who had placed an order with us of 20 million and we had to cancel it because he did not come up with his financing. The reason that he gave me in our discussion was very simple. He said he was not able to acquire the land that he needed for the mill because one of his competitors was faster. So it had nothing to do with his ability to finance the investment. It was just a matter of a battle over land in Turkey. We also had customers who had to cancel because they were not able to get the financing together on time. But I'd say 100 million out of 2.2 billion, this is not a lot. And the vast majority of our customers tell us, no, no, we hold on to the projects, we move on. We see the opportunity which will come our way when the market recovers.

Okay, too precise that you refer that you take the cancellations out from the order backlog. of 2.1 billion, so that was negatively impacted. Was the order intake of 869 also lowered by this 100 million because you take it also over the order intake figure or not?

Yes, this number was also impacted.

That's also a net figure, the 869?

That's also a net figure, yes.

Perfect, thank you.

The next question is from Alessandro Folletti from Octavian. Please go ahead.

Good morning. Thank you for taking my questions. I have three. Can I ask them one by one and then I have a follow-up on what we just discussed?

All right.

Thank you. First of all, on the margin deterioration, you have explained what the reasons are and I think I've understood. But what I'm interested in is What do you feel were the mistakes that you have done? I mean, in such a situation with booming sales and having the margin imploding, must have been mistakes done. And I would like to know if you have identified some and how do you plan not to repeat them?

Well, we reviewed the situation, of course, and we don't think that we made a mistake. I guess nobody expected cost to increase by 20% within one year. Nobody did that. So at the time that we got the orders on our books, the prices were very good. We were happy with the margins. And the second thing that I have to mention here is, Despite many efforts in the past, we didn't have a price adjustment clause in our general conditions. The resistance of our customers was very high. And now in this situation, we have been able to introduce it and we make progress contract by contract. But the industry in total was not able to to implement this before. So that is the two things that happened here. I guess nobody had more than 20% cost increase in the estimates and the price adjustment clause was an unknown thing in our industry. That is the two major things that I can mention here.

Okay, thank you. Fair enough. This leads perfectly into the next question. When I look at the backlog, 2 billion approximately, can you give an indication of how much of this backlog really still has this problem? I imagine not all of it has this problem of being sort of hanging skewed on the prices. And can you say what's the progress if you manage to now sort of renegotiate

20, 30, 50, 80% of what you plan to renegotiate? You saw from our slide 8 that roughly 200 million of backlog which we had acquired before June 30 last year is still on our books. So that is the main focus of the renegotiations. The rest of the order backlog are machines and systems, if I got that right, at 1.8 billion roughly at the moment. The other 1.6 billion has been acquired in the meantime. including the price increases, including price adjustment clauses. So the big rock here in terms of renegotiations and margin improvements is obviously the 200 million, which we still have from the times before June 30 last year.

All right. So if I understood properly, the 1.8 billion that has been acquired later already has the new price adjustment clauses in the contract.

Not all of it. Not all of it. We only implemented it early this year. But, I mean, this is only important or is very important for backlog that goes beyond the delivery time of one year. There you really need it. And since we implemented it early this year, we are able of getting it into the contracts one by one, contracts which have a delivery time exceeding one year.

Right, understood. My third question, before I come to the follow-up on the cancellations. Regarding Turkey, I'm kind of surprised to see it's really so strong, given the development of the Lira. Why do you think it's so?

The Turkish textile industry managed to disconnect themselves from the Turkish Lira. This industry works based on hard currency. They have sales in euros or US dollars, they buy their raw material in US dollars or in euros, and they buy their machines in Swiss francs, our machines. So the only guys in this industry, the only participants or stakeholders in this industry who still are connected to the Turkish lira are the workers. And the rest of the business is based on hard currency. This is why we don't see an impact of the Turkish lira inflation on our business in Turkey.

Right, but that must also mean that most of your Turkish clients there actually export their products because otherwise they would have to sell in lira.

Yeah, absolutely. The Turkish textile industry is a hub which targets the European market.

Okay, thank you. And then my follow-up on the cancellation. You mentioned that basically the main reason for this cancellation were financing availability. And then what I don't understand is you mentioned that one of the examples was financing was not ready on time. What does that mean really? Why not just waiting until one week, one month or two months longer? Why the need for a cancellation?

Because the price was not okay, Alessandro.

So basically the decision is you walked away from the contract.

If we have a customer who makes a commitment on bringing the financing to the table, And he says, I can do that. We give him additional time, one time, two times, three times. But based on the fact that contracts have been acquired earlier and the margin is not where it's supposed to be, there is an end to this. And we told the customer a couple of times, this is the third extension of your deadline, but this is the final one.

Okay, okay. I understand. Thank you.

The next question is from Christian Arnold from Stifel. Please go ahead.

Good morning, gentlemen. Question on the acquisition-related impact at EBIT level. You mentioned this 11.2 million. How much of that is actually integration cost? How much is additional amortization?

So we do not split into this.

We have the transaction cost, this 2.4 million out of this 11.2 million, and the rest we do not split.

Okay. So we could... Okay, so the 2.4 million, they are not recurring. They are done. And the rest is partly recurring and partly not.

Yes, and you can see it when you look at the EBIT-A that we have introduced newly as a key figure, the difference between the EBIT and EBIT-A is the amortization effect. This is in the key figures on the media release on the last page.

Okay, good. On the guidance, you are saying that you expect an EBIT be below last year's level. If we now think only about H2, do you think you can meet last year's level? Just looking at H2?

To be very honest, I've not looked into that. I don't know.

Because thinking of, I mean, you are going to have, again, clearly higher sales level to 300 million higher sales level in H2 like in H1 and if you look at your EBIT bridge on page 10 one should also think that the margin deterioration should be clearly less compared to H1 as you have now You worked through your backlog quite substantially. I was just thinking what you could share here about your thoughts.

If you compare H2 last year to this year, when you look at sales, last year was 570 million roughly. This year, when you take the 1.4 million minus the 620 million, then it's 780 just below 800 million. And this is certainly the key to a better EBIT in this second half year is the volume. And this is, of course, there's a certain risk that we cannot deliver this volume. Of course, we will still have some additional costs related, first of all, higher costs, because it's not fully in the order backlog the full cost increase, because this was done step by step last year, so there will be a certain effect. On the other hand, we will have a positive effect from the higher fixed cost absorption in the factories, because the volume is higher than compared to what we did second half last year. And negatively, we will have, of course, still costs related to to overcome these missing material effects. And all this together then goes into the EBIT. And last year we had an EBIT of 38.6 million. So this is a good number, I would say. I cannot give you more guidance on this. But it's mainly, I think the main thing is the volume theme in the second half.

Does this help, Christian? A bit. Thank you. You're quiet.

Okay. Thank you very much. Thank you, Christian.

The next question is from Sebastian Vogel from UBS. Please go ahead. Hello, can you hear me?

Yes, we can hear you, thank you.

Perfect. I've got also three questions I would ask them one by one. Coming back to this 11 million of the amortization or the acquisition cost, sorry. If I would look just at the backlog amortization that I would guess was also coming with this transaction, can you remind me what that will be and would this backlog amortization being done within one year or given all the constraints you have, would that be spanning over one to two years?

No, the backlog It should be done within one year, the bankroll commoditization.

And the level roundish? Can you give us an indication, at least sort of a ballpark figure?

No, we don't disclose this.

Got it. When you earlier mentioned the PPA impact on the margins for the different segments, would it be possible to share there also the PPA level by segment? that we sort of can figure out what is the sort of the underlying margin and what is the sort of PPA impact on the margin.

You see the difference in the EBIT day and the EBIT, you see the impact on the profit and loss of this amortization. And this is by segment, by business group.

But that should be lower in the future, right?

Yes, it should be lower. It's high in the beginning and it's the first three months is the highest. and then it goes down, and I would say after one year, then it's stabilized on a certain level, and then depending on the different depreciation periods of the different assets, it will take up to 12 years.

Got it. My last question with regard to the structural costs that you have shown there on slide 10. I wasn't getting 100% what was going into that one. Can you elaborate on that? What were the cost items that went into it? And how should we think of that one going forward?

The structural cost basically includes RNT and SG&A.

And therefore, that is related, I assume, to the current situation, right? And therefore, also something what we should expect for H2 and potentially H1-like steel as well?

So part of the increase in this, and I mentioned it, I think, when I showed the slide, part of the increase is related to volume, because we have higher volume and a certain cost in there is volume related. And another part is related to this extra cost that we have to ship out to replace, to find new solutions, to replace current solutions, to overcome this shortage of material. And this will, in the second part of the year, will continue.

you have a sort of sorry my last follow-up question there do you have sort of a split how how these nine million uh should be split between the two drivers that you just outlined i'm not not precise number but at least sort of it's like one third two thirds or 50 50 or maybe two thirds one third perfect great many thanks so two-thirds would be related to extra costs because of the to overcome these delays

I gave you a flavor on the development program, which is happening at the moment, to make sure that we can replace the missing material. This is a major effort, of course, and we have to be fast. So speed is of the essence here, but at the same time, we don't want to create a new quality problem out there in the field. So as Kurt said, out of the 9 million, two-thirds is related to development costs and the work on replacing, substituting missing material.

Got it. Really helpful. Many thanks.

Thank you.

The next question is from Andreas Meyer from Finanz und Wirtschaft. Please go ahead.

Andreas, we can't hear you.

Mr. Meyer, your line is open. We cannot hear you. Maybe you want to unmute.

Yes, sorry. You hear me now? Yes. Okay. Thank you. Thanks. Sorry for that. In your cash flow statement, there is the position proceeds from disposal of property, plant, and equipment of 22.6 million. Can you say what this is and how it impacts profit and loss for the first half of this year?

This is the share of the real estate that was sold and where the new campus, Norbert Klopper explained in his presentation, will be built on. And this is the land and the project that was originally started by Riete, but is now done by a third party, and this is the proceeds from this. for the first half year there is zero profit on this it's a cash flow effect it's not okay okay profit on it okay okay all right thank you thank you the next question is from sebastian hoyitz from cuero please go ahead hi thank you for this presentation uh basic question uh what what you say on

moving from customized components to standard hardware and software. I understand that there is a negative impact on the short term due to required investment to do so. But could you help us to understand the impact on your profitability in the mid-term? Should we expect cost savings due to cheaper standard components?

I mean, the strategy of doing the customized solutions in a highly integrated way were driven by the consideration to get minimum cost. So moving from this customized highly integrated solution to standard solutions per se in the first instance will lead to an increase of cost. However, it gives you a different purchasing power. So at the end of the day, I expect it to be cost neutral, the move that we are making here.

Okay, thank you.

And the change that we are making here is driven by improving the security of supply. That is absolutely key. But as I said, I guess the two things that I mentioned were balanced out. We will not see a big impact in terms of profitability.

The next question is a follow-up question from Sebastian Vogel from UBS. Please go ahead. Hello, can you still hear me?

Hello? Hello? Yes, we can hear you. Yeah, sorry. Yeah, one last question from my sort of follow-up on the price adjustment clause. Just to be clear there, what are the sort of costs that are covered by this price adjustment? Is it just raw material? Is it also energy costs, shipping costs, labor costs, and so on? So just to have a bit of a sense there, what are the sort of different cost items that are covered in these clauses?

That would be great. Yeah, what we put in is 70% of the price of the machine, you know, is related to the price adjustment clause. And this covers, of course, material cost, logistics cost, and the annual rates of our people in the factories where we produce. So that is the order of magnitude we're talking about.

Got it. Perfect. Many thanks.

We have a follow-up question from Walter Baumer from ZenKB. Please go ahead.

Thank you. Let's talk real estate. Is it realistic that given the zoning of the land you want to sell and the possibilities there, that 3,000 francs per square meter is realistic? And would all the proceeds next of a, let's say, 20% tax go into the balance sheet of Rieter? Because there is almost no book value attributed to that land currently.

Today we are not in a position to talk about the price of the land that we think we can get. We have only started the process. We will send teasers out now and we will see the response of the market. It's too early to talk about money here.

And the taxation and the book value of it?

The land is owned by REIT for a long time, so you can imagine that the book value is not that big in the books anymore.

So what I said close to zero and the tax would be around the Zurich minimal tax on land for 20% or even less?

Yes, it depends. If you would assume that there is a So it would go into a different way. Then you have to have additional charges on this. So you cannot say it like an easy 20% or below.

Okay. As you are in an early stage of the disposal, you probably also don't want to comment on the timeframe.

I guess we will see what the response is going to be after the summer break. Teasers will go out this week. That is the plan. And then we will assess what came back and what the next step of the process is going to look like. So I don't think we will complete this by the end of the year. From today's perspective, it will take longer.

Okay. Thank you for the information.

The next question is from Rolf Reinders from AMG. Please go ahead.

Yes, good morning, gentlemen. Thanks for taking my question. Can you please elaborate on the plans and the financing again for the campus?

Campus financing? The financing of the campus?

Yeah, the order of magnitude of some figures which will be involved.

We want to communicate that the whole campus investment volume is around $90 million. This is still true. And basically, it will be purpose-built for us by a third party. And we sold, as you just heard, we sold the land and the starter project to this third party to do it.

Okay, thank you.

And then for... Fiscal year 21, you paid a dividend of 4 francs. Now, given these challenges you have this year, what are your expectations for the dividend for this year?

I'm going to read my standard answer to you now. Where do I have it? You know that an attractive dividend is important to us. You know our policy. to pay a minimum of 40% out of the net profit that we generate. But obviously the decision will be made in spring next year by the AGM.

Okay, thank you. And then I remember a presentation of you, which involved the FARO, which had actually the prospects of very good years ahead. And now, of course, this... was not to be foreseen what we are now. But should I then conclude that this is just a hiccup and that the good years are just postponed? Or what's your view on that?

I guess it is fair to say that the fat years take a break with you. What has to happen before we can continue with the Fed years is that we have to overcome the challenges which are around at the moment. And we discussed them during this call and in the presentation. What is important to us is that the underlying trend of the spinning industry leaving China and at the same time making investments into the Chinese capacities which are supposed to stay This trend is still intact, and it will continue for a couple of years because the capacity which stands in China, the spinning capacity, is so big that it will take years to accomplish what the industry has started to do. That is the underlying rationale, and this has not changed. We see it in our numbers. We see it in the countries where we are working. We hear it from our customers. This will go on.

That's great. Thank you.

The next question is a follow-up from Chris and Arnold from Stifel. Please go ahead.

Yes, thank you. Could you remind me on the square meters, the amount of square meters your campus is based on?

38,000.

38,000. And... This proceeds from disposal purchase of other non-current assets of land equipment. It's 22.6 million. That is actually linked to the 38,000 square meters. Is there some additional assets I should think of?

We sold the project, not only the land. We sold the project the way at the state that we had pursued it so far.

Okay. And the remaining land you are going to sell, do you expect that you have to do here some cleaning work first, some extraordinary expenses, because this has been industrial land for hundreds of years?

We will not do any of that. We will make it part of the process. Potential things to be done in that direction will be part of the process. We will not do that work up front.

Thank you.

The next question is a follow-up from Sebastian Hoyet from Quero. Please go ahead.

Thank you. Two follow-up questions. First, you mentioned price increase of 15% earlier this year, and now you're talking about 20%. So we understand that you're was able to increase your price by additional 5%. And we are seeing some costs who are now going downwards. So could we see at some stage a positive impact on your margins, or would you give back that to your clients?

I mean, for the customers who have signed the price adjustment clause with us, If we really have a cost advantage compared to the time when we signed the contract, these customers will benefit from it. For all other customers who have not signed such a clause, we will see the benefit in our margin.

Okay, it's clear. And the second question is getting some news on the Egyptian contracts. I had in mind deliveries starting from H2 this year and then in 2023, so could you help us to understand the timeframe? And also, it was a contract you won a long time ago, and you mentioned in your order book only 200 million of orders, which may be problematic. So we understood that you have successfully renegotiated terms with your Egyptian client? What are the expected margins on this contract?

To answer the first part of the question, shipments have started in half year one, so we are executing the contract. And regarding the margin, I'm not concerned about the margin in this contract. We have source the material required in earlier days, so our margin in this contract is not in danger.

That's great. Thank you.

That was the last question.

All right. Thank you very much. Thank you very much for being with us this morning. Thank you very much for your attention. and for the lively discussion that we had. We very much appreciated that you were with us, and we thank you for your interest in Rita, and we wish you a wonderful summer break. I hope it will start soon for you. Thanks a lot. Thank you.