Rieter Holding AG

Good morning, ladies and gentlemen. Good morning. Also a warm welcome from my side. Before I begin the presentation, let me draw your attention to the picture on the cover page. Here you see the new AirJet spinning machine, J70. This is our latest weapon in the fight to stand out from the competition and to further expand our market leadership. First, Let me start by briefly giving you an overview of what happened in 2023. We started the year with a large order backlog and our key focus was to deliver this backlog on time and cost. However, our supply chain readiness was not yet at the requested level. We still had missing material from some key suppliers. In February 2023, The earthquake in Turkey was not only a tragedy for the people and customers there, but also for our business. The textile exhibition ITMA in Milan in June 2023 was a resounding success for ITMA. The reservation lists for all new machines were fully booked within only a few days. At the beginning of July 2023, we have successfully closed the sale of land in Winterthur. And also in July 2023, we announced the performance program Next Level, which should bring us to a new performance level in the future. Order intake for the whole year was disappointing. We suffered from the low demand in the textile industry due to geopolitical challenges, inflation and high interest rates. The economic uncertainties were particularly noticeable in the demand for new machines, but also for consumables, wear and tear and spare parts, resulting in a low order intake for Riete. So, it was a challenging year, full of unexpected turmoil. But the team did great. We were able to roll out our backlog, eliminate the missing material, improve our profitability, and achieve a cost level which allows us to have a positive margin also in low scenarios in challenging years. The Riete team did great, and I could not ask for more in terms of commitment, dedication, and loyalty. Let's start with the key messages on slide number four. Except for the very low order intake, Reiter performed on a substantially higher level than in the years before. At comparable sales level like 2022, we improved the EBIT by more than 200% and increased the net profit by more than 500%. We have seen that the performance program Next Level is bringing us the right cost level for the coming years. The market situation is challenging and remains under pressure from the economic slowdown, high interest rates and damped consumer sentiment. I will talk about this topic in more detail on the next slides. But we are also investing into the future. Our new campus in Winterthur has been handed over from the construction company and we will move into the new offices and the new technology and customer center within the next three months. If there is a sour grape, then it is our order intake. Order intake in the financial year 2023 was around 542 million Swiss francs. There are several reasons why the order intake was low. Let me mention two of them. First, the financing costs for our customers have increased and make investment cases less attractive in 2023. In addition, the time needed to conclude a proper financing has risen in the last couple of months. Second, textile consumption was lower worldwide. This also had a negative impact on investment sentiment, which was a result of the previously explained low market sentiment in the textile industry. Consequently, our order backlog is at around 650 million Swiss francs as of December 31, 2023, but still extends well into the year 2024. The board of directors proposes to the shareholders the distribution of a dividend of three Swiss francs per share for 2023, which is double the amount of the previous year. And now to the market. Let's start with the sales by region on slide six. There is a clear trend visible from west to east, whereas the Americas, Europe, and Turkey recorded a decline in sales volumes from 2022 to 2023, we saw increasing figures in some Asian countries due to our large contract with the cotton and textile industries holding company in Egypt. We expect that the market in China will remain strong. Asia is coming back. And finally, Europe and America. Let's move to slide number seven and have a look at the spinners margin and the cotton price development. The average spinners margin was substantially lower than in the boom years of 21 and 22. At the beginning of 2023, it was even lower and started to improve in the second half of the year. The average cotton price dropped in 2023 and now allows spinners to make profit with their mills. Many of our customers still had cotton in stock, which they had bought at high price levels of 2022, so they made no profit with the yarn prices of 2023. the situation has substantially improved. We now move to slide eight and have a look at the spinning mill utilization. We see the overheated markets in the year 2021 and partly 2022. China cooled down first and has started to recover. India is still slightly below 2022, but over the last couple of months, The spinners have been seeing an improvement in their margin generation. The rest of the world is still on a low level, mainly driven by Turkey due to the earthquake and some other Asian countries attributable to economical and political challenges. For us, one of the most important markets is China. And therefore, let's have a closer look at it on slide number nine. China has about 40% of the worldwide installed base and seems to be the first market which comes back. Rieter has a strong local presence and with the changes of next level, which has created more decentralized decision authorities, we can attack this market better. First successes are already visible. We were able to win a major order from China in the amount of around 62 million Swiss francs and enter a strategic partnership with one of the biggest spinners in the world last week. Apropos next level, I would like to give you an update on slide number 11. Next level is a performance program which will allow us to achieve substantially better financial results in the future. independent of where we are in the cycle of the industry, we want to achieve always positive results. 0 to 4% in a low scenario, 4 to 8% in a mid scenario, and 8 to 12% in a high scenario. And now to slide number 12. I know there was a question if we can achieve a low scenario with this low order intake in 2023. We had at the end of 2023 a backlog of 650 million Swiss francs, where of around 100 million will not be executed in 2024 or will be cancelled. Therefore, we will have around 550 million Swiss francs sales in 2024 coming from this backlog. We can expect that around 250 million Swiss francs will come from order intakes in 2024 in the business groups of the sales and components, as their book-to-bill cycle is only four to six months. So we will need around 200 million Swiss franc sales from order intake 2024 in the business group machines and systems. Thereof, Around one quarter will come from single machine sales, and we are well on track with that. And around three quarters are coming from large projects, like the one I mentioned before. So we anticipate that this can be achieved in 2024. Now let's move on to slide number 13. We already show you the key elements of Next Level in the last two calls. The team has done a lot of progress in all four key areas. Sales excellence, competitive products, effective supply management, and agile structures. However, there is still a lot of work ahead of us. We have to make sure that we further progress in our strategic ambition of industrial leadership. I will continue now with the ITMA 2023 and innovations on slide number 15. Even in challenging times, we want to invest into the future. For us, the future means to stay technology leader. We just have launched and presented breakthrough innovations in June and November 2023 at the ITMA in Milan and Shanghai, which you see on slide number 15. But we have to make sure that also at the ITMA 2027 in Hannover, our customers are delighted by the next generation of innovation leads. Technology leadership assures our market leader position, and it is a prerequisite to achieve a price premium to generate a solid financial performance. Besides the lowest conversions cost through productivity and efficiency, or price premiums for our customers due to the high yarn quality, we have to work more and more on sustainability with high recycling possibilities, automation for all type of material transport, and digitization for the perfectly running spinning mill. On slide 16, you see our R&D spendings per year. Also in the future, we will invest into the previously mentioned fields like digitization and artificial intelligence, automation, and circular economy. With this, I close the first part of my presentation and now hand over to Oliver Strohli for the financials.

Thank you, Thomas. Good morning, ladies and gentlemen. Also a warm welcome from my side. It is my pleasure to present to you the key elements of our financial performance in 2023. I will start on slide 18 with the key messages. Overall, 2023 was a remarkably better year in terms of financial performance compared to 2022. What stands out is a significantly higher profitability and a strong cash generation, reducing net debt by more than one third. Despite the slightly lower sales level than in 2022, we were able to increase gross profit by 16% due to strong order execution and a certain relief on material and logistic costs. EBIT increased by more than 200% compared with 2022 to 101.7 million Swiss francs, including the positive effect from the sale of land in Winterthur and the negative effect from restructuring costs on their performance program Next Level. Cash generation improved significantly over the previous year, which resulted in a net debt reduction of 94.4 million Swiss francs. Order intake, on the other hand, marked the low light with a drop of 53% to the previous year, reflecting the difficult market environment in the textile industry due to geopolitical challenges, inflation and high interest rates, as mentioned by Thomas earlier. However, thanks to our solid order backlog of around 650 million Swiss francs at the end of 2023, we have more than half of a low sales scenario which we expect for 2024 covered let's continue with a deep dive on the following slides starting with ebit on page 19 and 20. Although we were facing some delays and shifts of order deliveries in the last quarter of 2023 into 2024, which resulted in a 6% lower sales compared to the previous year, we were able to increase the EBIT margin by 5.1 percentage points compared with 2022. Special effects from the land sale in winter tour and extraordinary restructuring costs had a net positive effect of 1.3 percentage points, which means that the operating performance improved by 3.8 EBIT percentage points in 2023 compared to the prior year period. The improved operating performance confirmed that the supply chain issues and significant cost increases in the last two years are being tackled successfully by our teams. On page 20, we outline the most important drivers of our EBIT increase. Despite the lower sales level compared with 2022, we were able to increase absolute EBIT by more than 200% in 2023. More than 70% of our absolute EBIT increase or 51.3 million CHF in absolute terms was due to a higher gross profit, which was driven by a realization of price increases and a significantly better operating performance. Most notably, we were able to resolve most of the open issues regarding missing materials and uncompleted machines in the field, which enabled overall a smoother order execution. Cost discipline in R&D and SG&A expenses and first positive effects from the next level performance program led to an EBIT improvement of 3.5 million CHF compared to 2022. The first positive results from next level give us confidence that we are well prepared to further deliver on our ambitions in 2024. As already highlighted several times, special effects include the positive EBIT impact from the sale of land in Winterthur in the amount of 72.5 million Swiss francs and the negative effect from restructuring costs predominantly driven by the performance program Next Level in the total amount of 54.6 million CHF. So far, so good. Let's have a look at the order backlog situation on page 21. The order backlog at the end of 2023 stood at 650 million CHF, reflecting a more normalized level after the exceptional years 2022 and 2021 The order backlog as of end of 2023 consists of around two thirds of machines and systems and around one third of components and after sales. Order cancellations in 2023 remained on a normal level, indicating a certain robustness of the underlying customer demand. As a consequence of the price increases in the last 24 months and cost reductions in operations and supply chain, the current order backlog margin further increased compared to 2021 and 2022. Despite the lower order intake and the high sales realization in 2023, the current backlog covers more than half of a low scenario sales level of around 1 billion CHF of 2024. As indicated by Thomas earlier, we anticipate to win the required orders in the machines and systems segments in the coming months, whereas the after-sales and component sales are characterized by faster booked build times and should be supported by our expected market recovery in the course of 2024. let's have a closer look at cash flow generation on page 22. in 2023 we improved our free cash flow by over 200 million swiss francs compared with 2022. the better cash generation was driven by enhanced operating performance the sale of land in winter tour and an overall improvement in networking capital versus 2022. Consequently, our cash flow from operating activities amounted to 69.3 million CHF in 2023, which marks an improvement of more than 140 million CHF compared to the previous year, and is predominantly driven by a higher profitability, as explained before, and a reduction in networking capital. Pre-cash flow from investing activities in 2023 amounted to plus 49.4 million Swiss francs, which includes the cash proceeds from the land sale in Winterthur in the magnitude of 89.1 million Swiss francs. Excluding the sale of land in Winterthur, investing cash flow amounted to minus 39.7 million Swiss francs, while capex remained slightly below the level of depreciation. On page 23, I would like to explain the development of our most important balance sheet positions in 2023 compared with 2022. Overall, and despite the significant headwind from the reduction of advance payments from customers, which decreased by 96.4 million Swiss francs on the back of a low order intake, networking capital was reduced by 39.5 million Swiss francs, turning negative for the first time since 2021. On the one hand, The improvement in networking capital was driven by a significant reduction in receivables and inventories as a consequence of executing our existing backlog. On the other hand, advanced payments from customers and account payables decreased remarkably on the back of the lower order intake and lower procurement volumes into 2024. The recognized restructuring provisions in relation to next level reflected in other networking capital also played a role in the overall reduction. The solid operating cash generation and the sale of land result in a substantial reduction in net debt by 94 million Swiss francs, pushing our net debt to EBITDA ratio down to 1.2 times compared with 3.4 times in 2022. A decrease in total assets, mainly driven by the reduction in net working capital and the significantly higher net income, led to an increase of our equity ratio by 5.4 percentage points to 28.8%. The increase in our equity ratio was delivered despite significant FX headwinds, specifically translation effects from assets held in soft currencies, which depreciated materially in 2023, leading to a negative impact on our equity ratio of close to 4 percentage points. The improvement in our equity ratio is a step in the right direction, while still being below our target of a minimum of 35%. On to the workforce development. As can be seen on page 24, our workforce measured in full-time equivalents decreased by 18% in both direct and overhead functions as announced under the performance program next level. The high reduction is, aside from structural efficiency measures, predominantly driven by the necessary capacity adjustments to allow sales scenario in 2024. REIT went through hard and unpopular restructuring measures over the last eight months. On the positive side, the measures prepared us to deliver on our next level ambitions as announced on July 20th last year. I would like to conclude my presentation with the dividend proposal on page 25. In line with our focus on a solid balance sheet reflected in a targeted equity ratio of over 35%, the board of directors proposes a dividend of three Swiss francs per share at the upcoming annual general meeting on April 17th, 2024, which reflects a dividend increase of 100% compared to the previous year. That's it on the financials. Back to you, Thomas.

Thank you, Oliver. Let me give you an update on our sustainability performance. For the first time, we have integrated the so-called report on non-financial matters into the 2023 annual report. In 2023, we conducted a materiality survey among the company's key stakeholder groups. The aim was to identify the most relevant environmental, social and governance issues for ITER. We will take these topics into account in the further development of our sustainability strategy. And we are well on the way to achieving our 2025 targets for planet and people. Markets remain under pressure from the economic slowdown. high inflation rates and damned consumer sentiment. Customers are reluctant to place orders due to financing challenges. The first signs of a recovery in the 2024 financial year have emerged in the key markets of China and India. Reiter expects demand to increase in the coming months. For the full year 2024, Reiter anticipates sales in the region of 1 billion Swiss francs and a positive EBIT margin of up to 4%. Now we are open for questions. Relindis, may I kindly ask you to take over the coordination.