Rieter Holding AG

Ladies and gentlemen, welcome to the press release of the 2023 conference call and live webcast. I am Sandra, the chorus call operator. I would like to remind you that all participants have been listened only mode and the conference has been recorded. The presentation will be followed by a Q&A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Norbert Klapper, CEO. Please go ahead, sir.

thank you very much good morning ladies good morning gentlemen welcome back it's been a while welcome back we thank you very much for being with us this morning at our media investor and investor conference and we will address three chapters today which you find on our introduction slide here the key messages related to 2022 will be covered by me Financial results will be presented by Kurt Ledermann, our CFO, and the outlook will be shared with you by Thomas Oetterli, who will succeed me as the CEO of Rita as of March 13, Monday next week. Page 3 shows the key messages which are already known to you to a large extent from the January communication. I will focus on seven topics around the key messages this morning. Number one, Rita generated record sales of more than 1.5 billion in 2022. In this context, I would like to share some insights with you regarding the challenges in 2022 and their impact on profitability. Second, I will talk about the action plan to increase profitability, which is in place. Third, I would like to talk about order backlog and order intake, followed by number four, strategy implementation, and number five, market situation. My sixth point on the agenda is the ITMA Milan plans that we have. followed by the site sales process in Winterthur. And I have an eighth item, unfortunately, on the agenda, which is the earthquake in Turkey and Syria. Let's move on to page four, topic number one, record sales challenges and their impact on profitability. We show here on this slide a comparison between 2021 and 2022. In 2021, Greta generated 4.9% EBIT margin from much lower sales. In 2022, in the second half of the year, EBIT margin was at 4.7%. So we were able to overcompensate the loss from the first half years. 2022 was characterized by four major challenges. A top-line growth of 56% year over year is a challenge by itself. It's a major stretch to an organization. On top, we had a drastic increase in material and logistics costs, along with costs to compensate massive material shortages, in particular for electronics. and we had to build the automatic wind-up business from the assets we had acquired and integrated into Rita. The combination of the four challenges stretched the Rita organization and team to its limits. I would like to take the opportunity and express my appreciation and gratitude to the Rita team around the globe who made things work and generated a profit despite those challenges. Looking at gross profit development on page five, you can see the impact of the cost increases and of the acquisition. We expected 130 million gross profit on top of what we had generated in 2021 from the additional sales volume, but we only got 52. I would like to illustrate what happened by sharing two numbers with you. The additional burden from logistics cost amounted to approximately 10 million Swiss francs, and the under-proportional margin of the automatic winder business had a negative impact of around 20 million. As you know, we had started early to implement countermeasures, but they were not sufficient to compensate the impact of the cost increases, which hit the backlog we had booked in 2021. On page six, I'd like to share with you the structural cost development, which also shows the impact of the challenges. Obviously, an additional sales volume of 56% results in higher structural costs. The big rocks, though, have been cost to compensate the material shortages of around 15 million, particularly development costs for alternative technical solutions. And we had additional structural cost of more than 30 million, which came along with the acquisition of the three businesses we had acquired in 21, 22 respectively. The second topic on my list, the RETA Action Plan, page 7. You saw the progress we were making in the second half year compared to the first half year. In half year two, we generated an EBIT margin of 4.7%, which overcompensated the loss from the first half year. Execution of our backlog remains a priority. Material shortages have improved, but there is still work to be done. The same applies to mitigating the inflation impact. Price increases and price adjustment clause, new to our industry, have been implemented. Cost reductions and backlog improvements will continue. We are working on improving the automatic winder business, and we have tailwinds in some areas. For example, in logistics, which I will come to on my next slide. On the next slide, page eight, you see the two cost indicators we have been talking about for quite some time now to illustrate what happens and what the impact to our business is. You see here the container freight rates between Shanghai and Rotterdam, and you see the price per ton of aluminum. Container freight rates came back to previous levels. We are talking about $2,000 today instead of $14,000 at peak level. Aluminum did not fully come back, so we are satisfied to have implemented the price increases, which make sure that we pass on higher costs to our customers. Page 9 addresses my third topic, order intake and order backlog. With 1.157 billion, order intake was still at good levels. Order backlog of 1.5 billion is still strong. It's reaching a couple of months into 2023 for after sales and most of the components units and into 2024 for the machines and systems business. On page 10, we come to topic number four, strategy implementation. You know that Rita pursues the strategy of a system supplier. We love our single machine business. We love our components business and our spare parts business. But our goal is to offer a combination, a combination of the best machines, the best components, the best spare parts, the best service, and the best digitization. These are the ingredients of a superior spinning system. On page 10, you can see what we have achieved in this respect in 2022. We sold complete ring and compacting systems for around 19 million, having in mind that the missing machine, the automatic winder, only came on board in April. And we sold complete rotor systems for around 130 million. In addition, We reached a major milestone related to digitization. Essential Monitor, the monitoring system for the entire mill, was released for sales in December for all Rita systems. Now Rita has the platform to make the system intelligent. Topic number five, market situation, follows on page 11. Obviously, and I guess you hear this in many presentations, the investment sentiment is impacted by the global uncertainties and turbulences by increasing financing costs to our customers and, in our case, by low textile consumption. What comes on top in our business is the ITMA effect. ITMA is the big trade show which is going to take place in June in Milano. And this happens every four years, and customers tend to hold back investments to see what's new at this trade show. What you also see on my slide is the operation rate of spinning mills, and this operation rate is pretty low. February shows 66% in comparison to the 76% we discussed in January. The normal level with this scope that we have here would be around 90%. We took for this consideration China out. You know that in China in February we had the Spring Festival break, so we have to eliminate that. And obviously we took Turkey out because of the earthquake. 66% in our view is an overreaction of the industry. You know that I'm doing this business for quite some time and it's not the first time that I see that. Textile consumption did not come that down. to correspond to this capacity utilization of the mills. We expect the turning point to be reached in the coming months. Our expectation is particularly supported by what we see happening in China. We think that the Chinese market will pick up soon again. Two strong indicators are the household deficits in China of consumers have grown dramatically last year. So there is disposable income there, which can be spent for consumption. And we see yarn stocks and fabric stocks going down, which means that the textile chain starts to pull. So that is what we build our expectation on. And that is why we think we will see the turning point soon. And China will make the starting point. On page 12, you find our considerations regarding ITMA, the trade show in Milan. Our innovations are on track. We focus again on lowest cost per kilo yarn. This is why our customers buy our equipment, because it offers to them a system which provides the lowest cost per kilo yarn. Digitization is another topic we will focus on and recycling. An investor event will be held on June 12 in Milan. Let's move on to page 13, the site sales process in Winterthur. We are very happy with the progress we're making and we are confident that we will be able to make a decision during the course of the year. My last topic is a very sad one, Turkey. You are all aware of the terrible earthquake which hit Turkey and Syria on February 6th. One Rita employee is among the victims. On that day, Rita had 85 employees in Turkey. They have been evacuated by the Rita Turkey team swiftly, and they are safe, including their families. We brought them to a safe place. Approximately two-thirds of the spinning capacity in Turkey had been affected by the earthquake. Karaman Maraj, which is in the press all the time, is a place we know very well. We have a lot of customers there and the same applies to Gaziantep. They are centers, these two cities are centers of the spinning industry in Turkey. We are working full steam on putting our service station in Karaman Maraj back into operations. And I can report to you that last night I received a message that yesterday we have processed the first orders in our fallback solution type of operation in Karamanmaras. So the business has started to pick up again. And we go through the mills together with our customers to determine what needs to be done in order to fix what has been broken. I can also report to you that we booked a major order in February from Turkey. So the business has not stopped. In addition, we are preparing a donation focusing on housing. Housing is the big bottleneck at the moment, the big issue. Many buildings have been destroyed. You all saw the horrible pictures. And we have discussed with the local authorities and with our customers in Karamanmaras where we could help best And this is why we decided we will make a donation which is focused on housing. Housing for our people, but also housing for others. Because our customers have a couple of bottlenecks now. Of course, power is one bottleneck, raw material is a bottleneck, and people are a bottleneck. They have no place to stay. So housing is the best we can do, and that is why we agreed on doing that. in summary i have to tell you today it's too early to tell what the impact on our business is going to be we go through the process now of assessing the mills together with our customers and once we have completed this we have a better understanding of what's going to happen i trust i was able to share with you the facts and our views on today's topics the record sales the challenges and the impact on profitability, the action plan to get profitability back on track, order backlog and order intake, strategy implementation, market situation, ITMA Milan, the side sales process in Winterthur and the terrible earthquake in Turkey and Syria. I thank you very much and I hand over now to Kurt Ledermann for the financials.

Thank you Norbert. And Sonny, welcome to Wintertour. This morning, it's good to see you in person. Some of you I have not met, never met since I'm CFO four years ago, almost. Never met because of the situation. So it's really nice for me to speak here and to meet you personally. Let me start with the financial highlights on slide 16. 2022 was again a challenging year, though very different compared to the previous years. A huge order backlog of more than 1.8 million promised a record year. And so it was. Sales were up by 56% at the record level of 1.511 billion Swiss francs. This number includes around 190 million from the acquisitions. Drastic cost increases for material and logistics and a massive material shortage reduced the EBIT. Expenses in connection with the acquired businesses burdened the profitability. Hence, price increases, cost reductions, and measures to improve backlog margins were continued. Order intake was at 1.157 billion Swiss francs and remained at the high level thanks to Reuters' technological lead and broad international presence. Despite of a much weaker order intake and record sales in the half year two, the order backlog in December 2022 was still on a high level of more than 1.5 billion Swiss francs. Let me now highlight some of the other key figures on this slide. Mainly thanks to the high volume, the gross profit increased by 52 million, The margin, however, suffered from the before-mentioned drastic cost increases for material and logistics. Additionally, the acquisition of the binder business diluted the margin. EBIT margin for the full year was at 2.1%. While in the first half of the year EBIT was at minus 1.6%, we succeeded to deliver a 4.7% margin in the second half of 2022. The previously mentioned price increases, cost reductions, and backlog margin improvements paired with a clear focus on customer delivery were the key to this positive trend over the year 2022. Free cash flow was negative for the year. Specifically, the strong sales volume in the last months of 2022 led to an increase of net working capital, namely inventories and trade receivables. Net debt followed the free cash flow. Basically, the increase in net working capital is temporarily refinanced with short-term loans and cash. Finally, the Board of Directors payout a dividend of 1.50 Swiss francs per share. The payout ratio of 56% is clearly above the target minimum of 40%. In slide 17, you see a closer look at the EBIT development compared to the previous year. Gross profit added 52.5 million to the EBIT. Based on the volume and the margin in 2021, this effect would have been $130 million. However, due to the drastic cost increases from material and logistics and the negative mixed effects from the acquisition, almost two-thirds of this potential volume improvement was absorbed. Three effects have driven structural costs, that is R&D and SG&A. The higher sales volume increased some expenses that are not fixed costs. Second, alternative technical solutions that were developed to overcome the material shortages led to substantial additional costs of 15 million. And last but not least, the consolidation of the acquired business added costs. In total, the acquisitions lowered EBIT by over 20 million. The other income and expenses reduced EBIT in 2022 in total by 9 million compared to 2021. This is mainly due to positive effects in 2021 that did not repeat in 2022. Increase of the total assets in the balance sheet by more than 100 million on page 18 was mainly due to the increase of the net working capital. These higher inventories and trade receivables were funded by additional current financial debt and cash. Shareholders' equity decreased by 36 million. While the net profit added 12 million to the equity, 18 million were paid out as a dividend. An additional effect of minus 29 million due to unfavorable exchange rates had to be recorded in equity. This mainly due to the asset exposure in Euro, CNY and Indian Rupees. The equity ratio fell from 28 to 23%. There were various reasons for this decline. Firstly, equity was 36 million lower, as I just explained. Secondly, the total assets increased due to the higher net working capital. This stretched the balance sheet and reduced the percentage of equity. This effect will disappear once inventories are delivered, receivables are collected. As a global active industrial group, Reeder strives for a strong balance sheet. With an equity ratio of at least 35%, this target remains unchanged. The free cash flow on slide 19 was more than $225 million lower in 2022 than in 2021. In 2021, the main driver was customer down payments when orders were placed. In 2022, these orders were converted and down payments invested in inventories and accounts receivables. This explains $200 million of the difference. After returning to normalized volume, this effect will be reversed. Depreciation and amortizations are 6 million above capex. This is mainly related to the additional amortization from the acquired businesses. Capex are 8 million above previous year. This reflects the investment that were done to eliminate bottlenecks as well as investment in the acquired businesses. Finally, on page 20, the dividend proposal already mentioned before. Based on the results of 2022, the board of directors proposes to the shareholders a dividend of 1.50 Swiss francs per share. This is a total payout of 7 million Swiss francs. The payout of 56% of the profit is clearly above the targeted minimum payout of 40% stated in Reiter's dividend policy. With this, I close my presentation and hand over the word to Thomas.