Rieter Holding AG

Ladies and gentlemen, welcome to the semi-annual Report 2023 Conference Call and Life webcast. I am Sandra, 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 Thomas Utterly, CEO. Please go ahead, sir.

Good morning, ladies and gentlemen. A warm welcome from my side. First, our performance in a nutshell. The first half year was marked by a continuously low market sentiment with respective low order intake. However, our financial performance has substantially improved in the top line and also in the bottom line area. Second, the team has worked on the strategic front and we have developed a performance program called Next Level. This program entails some very tough decisions. We believe that they are necessary to ensure the long-term success of our company. Next Level should allow Reiter to achieve an ambitious financial performance at any time in the cyclical market of textile industries. In order to get there, however, we will need to make some painful adjustments. I will explain what this means shortly. First, Let's look at the agenda. We would like to share with you some insights into the market environment. Then Kurt will elaborate on the financials. Afterwards, I will take you through our planned performance program next level. And finally, we give you an outlook for 2023. I will go directly now to slide three and we'll stay quite brief with the key messages on the first half year 2023. Overall, we had a solid financial performance with positive EBIT and net profit. Our order intake was suffering according to the very low market sentiment driven by a low demand for textile products. However, our backlog is still healthy and covers the second half of 2023 as well as the beginning of 2024. I was positively impressed about our operational improvements. We further stabilized our supply management and were able to achieve a remarkable increase of our sales volume. In the first half year of 2023, we turned therefore increased volumes, strict cost management, and improved processes into results. Our gross profit, our EBIT, and our net profit showed remarkable improvements. Also, free cash flow improved, but was still suffering from a high level of networking capital. All in all, we made the right step into the right direction and will continue to work hard to improve our operational performance. More details will be presented afterwards by Kurt. Let's move now to the market environment on page number five and six. On page five, you see the market development of 2021 until 2023, based on purchasing decisions of our customers and not based on deliveries. It is clearly visible that after the very strong semesters in the second half 2021 and first half 2022, the market slowed down dramatically. Although the first half year 2023 is slightly above the second half 2022, we still suffer from a very low investment sentiment. Our expectation is that volumes in order intake will pick up only in the fourth quarter of 2023 at the earliest. On a regular basis, we measure the operating rate of spinning wheels worldwide. You see this on slide number six. As you can tell, this operating rate is roughly 10 percentage points lower than in 2022. However, we saw in the first six months a slight improvement from even lower levels at the beginning of the year. We expect that this will further improve towards the end of the year and that the corresponding demand for consumables, wear and tear and spare parts will probably recover later in 2023. Let's turn to slide seven and our presence at the ITMA. At the lead exhibition ITMA this June in Milan, we presented many new innovations which demonstrate the technology leadership of Reiter in the industry. Our focus was on technology quantum leaps, which enable our customers to have the lowest cost per kilogram yarn. In addition, we focused on digitization, automation and recycling solutions. The feedback of our customers was overwhelming and it gives us great confidence that once the market picks up again, our order intake will grow as well. The reservation list we had for all our new machines were filled within a few days. Let me now hand over to Kurt who will lead you through our most important financials. Kurt, please. Thank you, Thomas.

Good morning and welcome also from my side to this call. Let me start with some key figures on slide nine. In the first half of 2023, global market downturns, which were already apparent in the second half of 2022, led to a low order intake of 325 million. Sales of 758 million were recorded. This corresponds to an increase of 22.2%. Gross profit increased by more than 50 million. The biggest contributor was the sales volume growth. The growth margin increased from 21% to 24% and confirms the improvement of the margin quality. EBIT increased by 35.5 million to 25.2 million, or to a margin of 3.3%. Free cash flow in the first half of 2023 was at 10 million. This reflects the positive trend in operating profit, while the net working capital remained at the high level. which means it has not yet contributed to the free cash flow. Net liquidity mirrors the currently high sales volume. Basically, the increase in net working capital is temporarily financed with short-term loans. This is expected to normalize in the second half year of the year, when the current backlog is further processed. As you can see on slide 10, RETA recorded a low order intake of only 325 million in the first half of 2023. Lower than in the corresponding period of the previous year, however, higher than in the second half of 2022. The order intake in almost all regions was characterized by the reluctance to invest in new machines. Only in China, order intake did increase due to investments by spinning mills in improving their local competitiveness. At the same time, demand for consumables, wear, tear and spare parts declined due to the global market downturn. We currently see a quite strong project pipeline under negotiation. However, high interest rates for investments as well as low demand in textile end markets are weighing on order intake. The business model of components and aftersales is less cyclical than the machines and systems. Hence, the reduction of order intake is less prominent. On June 30th, 2023, the order backlog was at around 1.1 billion. This is more than 1 billion lower than last June, but still extends well into the year 2024. As in the previous year, Cancellations in the reporting period were around 5% of the order backlog, also impacted by the effects of the severe earthquake in Turkey. In the first half of 2023, REIT deposed sales of 758 million, as you can see on slide 11. This corresponds to an increase of 22.2%. The business group Machines and Systems recorded a very strong project execution, despite some postponements because of the earthquake in Turkey. In addition, Machines and Systems' after-sales growth is supported by a base effect. The acquired Winder business was only consolidated as of Q2 2022. Consequently, 2022 includes three months, while 2023 includes six months in sales of this business. The business group components experienced a base effect as the SSM business benefited from a significant peak in a specific market during 2022, but this was not repeated in 2023. Although decreasing, Reader still faces issues with material shortages. A dedicated cross-functional task force to improve the situation is still in place. Let me move to slide 12. Growth profit increased by more than 50 million. The biggest contributor is the sales volume increase. The growth margin increased from 21% to 24% and proves the step-by-step improvement of the margin quality. This includes higher price quality, higher productivity and efficiency in project execution, as well as strong focus on cost management. R&D as well as SG&A increased mainly for the following three reasons. A base effect from the acquisition consolidated only as of Q2 2022, as mentioned before. Expenses for alternative technical solutions to overcome material shortages and higher marketing expenses related to the ITMA 2023, an important trade fair that only takes place every four years. As a result, Reiter posted in the first half of 2023 an EBIT of 25.2 million and an EBIT margin of 3.3%. Finally, let's move to slide 12. As communicated on July 10, Reiter sold the land in Winterthur, which is no longer required for the operations, to Al Real. The company is acquiring the land with a total area of around 75,000 square meters. The agreed sales price is 96 million. Transfer of ownership is expected to take place in the fall of this year after fulfillment of the legal and contractual completion conditions. Reiter anticipates a positive impact on EBIT of around 70 to 75 million in 2023. The resulting cash flow is at 85 to 90 million. The new free campus currently under construction is not part of this transaction. With this, I hand over the word back to Thomas.