Rieter Holding AG (RIEN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Rieter Results Press Conference Call 2022 Media and Investor Conference Call. I am Paul, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] 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 Rieter's Media and Investor Presentation on the Results of 2021. We have prepared 4 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, retail is not affected directly by the war. Neither the Ukraine nor Russia or Belarus are textile countries. Rieter 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 Rieter's business, and the same applies to the assessment of potential consequences on Rieter's customers. Let me come to the key messages on Page 3. Order intake, CHF 2.2 billion 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 CHF 969 million despite the bottlenecks in the supply chain. As reported in January, Rieter 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 are 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 Rieter CAMPUS. More details in the third section of today's presentation. We proposed a dividend to the AGM of CHF 4 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 4, we have the comparison of the order intake by half year '19, '20 and '21, which illustrates the record that we had in 2021. All 3 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 2 elements in this record order intake here. There is a catch-up effect from the 2 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 3 factors. There is a market dimension, there is a retail technology dimension and there is a retail 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. The first factor, which we call the regional shift in demand and the rationale is the following: the staple fiber mill consumption in China 2018 was around 23 million tons. And 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 ton of yarns per year, you have to invest in spinning equipment roughly CHF 1 billion. 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 million 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 million 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 2 developments which are important here. And the first one is that the industry is leading 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 decided we looked at in January, which illustrates what I just said. You see here the order intake comparison in 2 boxes, the average 2011 to 2020, which Rieter booked the rating by country. You see that China was #1, Turkey #2. India and Uzbekistan and the U.S. followed. And in 2021, we had a different picture. We had Turkey on #1. We had India on #2, we had Uzbekistan on #3, China #4 and Pakistan new on the list #5. You see the different order of magnitude. Also, the average over the last 10 years was close to CHF 950 million. Last year, we booked CHF 2.2 billion. If we consider Latin America as a country, it would have been #3 on last year's list and #5 on the 10-year lists. So we see the regional shift here very clearly. And based on the rationale that I explained to you on Page 5, we are of the opinion that this is not over yet. The second factor is on Page #7. The second factor in this -- which is -- which helped to facilitate this record order intake is retail 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, the 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 Rieter does. Rieter 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 8, we can look at the third factor in this combination of things that led to the record. This is the system approach Rieter 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 Rieter 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 Rieter system attractiveness. In terms of machine performance, just give you 2 highlights here, 2 major machines in this system setup is the card and the preparation machine and the combo, which takes the short fibers out. And we presented 2 new machines at ITMA in Barcelona in 2019, and we sell a lot of them. And 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 Rieter Digital Spinning Suite 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 retail. And of course, we did the acquisition in the only machine, which was missing in this setup for Rieter 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 9 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 order backlog has to be turned into profitable sales. In the second half year last year, we booked CHF 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 retail 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 order backlog into sales in '22. 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 in 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, mainly in electronic components like inverters or controllers and in logistics, prevented Rieter 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 costs. Roughly half of the cost increase is volume-related. Another 1/3 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 CHF 80 million negative. This means payables and customer down payments, excel inventories and receivables by CHF 80 million. The high down payments from customer based on the high orders were the main driver. Despite the high free cash flow of CHF 128 million, net liquidity of CHF 41 million turned into net debt of CHF 162 million. This decrease of around CHF 200 million includes CHF 315 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 CHF 130 million. The gross profit improvement was on one side driven by higher volumes plus CHF 93 million gross profit. On the other side, by margin improvements in all 3 business groups, plus CHF 73 million. The mix effect, more sales in the lower-margin machine system and systems business reduced the gross profit by some CHF 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 and other 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 cost for trade shows and traveling, et cetera did not repeat in 2021. The other result added in total CHF 23 million net to the improvement. The highest contributor to these effects were higher 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 Saurer mentioned before. Various positions were directly or indirectly influenced by this acquisition. The increase in noncurrent assets reflect the EUR 300 million acquisition. Partly the acquired assets are shown on the property, plant, equipment, intangible assets and goodwill. The remainder is included in prepaid considerations. The second bond of CHF 100 million that was issued in August 2021 is shown on the noncurrent 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 CHF 46 million. The equity ratio decreased to 27.6%. This is due to the fact that the acquisition was fully financed without additional equity by existing cash, additional credit and CHF 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 on Slide 14, amounted to CHF 128 million. This is more than CHF 200 million above the low free cash flow in 2020. The 2 main drivers were the net profit improvement of CHF 120 million and the positive net working capital development. Included in the net working capital change are the increase in advanced payments from customers due to the high order intake. Depreciation and amortization are balanced with the CapEx and remained at around CHF 37 million. CapEx was CHF 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 CHF 4 per share or CHF 18.7 million in total. The payout of 57% of the profit is clearly above the minimum payout of 40% stated in retail 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 retail strategy to illustrate the impact of our last acquisition and of the Rieter 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 stable fiber spinning systems, #1 in premium, #2 or 3 in the middle segment and the market share of 30% plus. In the premium segment, this is where we want to be #1, lowest cost per kilo yarn. I already explained how important that is and what we do to achieve it. And the lower cost -- 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 4 together make up for the -- for 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 Accotex, 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 Rieter'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 field. 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 Rieter 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 the market. And the Rieter CAMPUS will attract this talent. Adjacent businesses we do selectively. You know that we have nonwoven activities. We also have filament activities and precision winding. The 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 Saurer. So we are very happy that we have been able to add this component business to the Rieter portfolio. Financial targets, obviously, with our 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 -- there is, again, an illustration of the winding business. To remind you of the numbers in 2018, this business generated under the ownership of Saurer sales of EUR 193 million and an EBITDA of EUR 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 Accotex and Temco. Accotex, the elastomer components for the spinning machines and Temco, which is a component business serving the filament industry. It is too strong component businesses, which I'm very happy that we have been able to make these part of the Rieter family. To remind you of the numbers, 2018, both businesses together generated sales of EUR 67 million and an EBITDA of EUR 12 million. We have started to -- as the carve-out is behind us already for these 2 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 Rieter 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 Rieter to have this because we need the 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 low. And it's not only a matter of the delivery times for machinery. I was in Turkey recently, and the 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. If not '23 is coming closer, there is customers out there. We think about it, okay, if we place an order now and we get the machines in '24, why don't we wait until it -- 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, 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 CHF 1.5 billion. The order backlog and the consolidation of the businesses, which we acquired from Saurer 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 the 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 aftersales, 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 & 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.

[Operator Instructions] The first question comes from the line of [ Dominik Feldges ] from [indiscernible].

I was wondering, 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, I mean there's a lot of talking about deglobalization in many industries, localization. And is it not or is that not happening yet or will it not happen, really never happen that mark -- I mean that new markets maybe will emerge for textile manufacturing, especially maybe also in the industrial countries, which partly at least have been active in textile manufacturing? Or is -- will it just all remain in Asia as before? And connected and related to this question, second one, I mean, is [indiscernible] really still the right place to do innovation? I mean, or would it -- 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 Rieter come down significantly. I mean, does this mean that we have really seen the best in -- that the market really is not really expecting much further increase in your business?

Yes. Thank you very much for the 3 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 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 the -- you wouldn't be competitive in Central Europe if you try to run a spinning business, the European textile industry will be nurtured by countries like Pakistan and 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 the right place, of course, Winterthur is the right place. As I explained, Rieter is – Rieter'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, the 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 Rieter has made a major step in strategy implementation. We see the benefits of the strategic implementation by the order intake that I explained to you. So yes, 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, is that -- 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 investment in testing equipment go at the moment.

So just if I follow-up. But...

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

Yes, sure. Okay.

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

Don't worry, I mean, it was just -- would have been a very short question, but...

Yes, of course. And then comes another short question.

No, no, no.

Give you a call, let's talk about it on the phone. That's fine.

The next question comes from the line of Walter Bamert from ZKB.

I would ask 3 questions, if I may. The first on orders 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 your 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 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 over proportional 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 then?

Okay, 3 questions. The start into 2022 was good. We are satisfied 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 2 half years. And the components business, yes, the biggest customer of our components business is the spinning mills, yes, 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. Further questions?

The next question comes from the line of Christian Arnold from Stifel.

I also have a couple of questions. Maybe starting with also the outlook and a follow-up question. We just heard before, this CHF 1.5 billion sales you expect. I mean, to what extent have you included the Saurer activities? I mean, of course, Accotex 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 CHF 193 million into that CHF 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 Saurer 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 CHF 1.5 billion excludes the automotive winder the 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, yes, for sure.

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

Are you trying to fill up your spreadsheet or what.

Yes.

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

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

No. We will start to ship this order in the second half of the year.

Okay. So then it's rather less than 50-50 or more than 50 next year.

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

Okay. Last question. You haven't given us any guidance for the profitability for '22 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 CHF 1.3 billion sales, a 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?

Yes.

44% plus on 1 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 retail 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. And -- but many, many things can happen while the -- based on the development that we -- that started on February 24, so we cannot give you a profitability outlook today.

The next question comes from Sebastian Vogel from UBS.

Can you hear me?

Yes, we can.

Perfect. I've got a couple of questions on -- first on the repricing of previous orders. Is that something that 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 offers going on at the moment. What sort of cost is covered today? Is it like labor cost, energy cost or it's more of a general adjusted that is covering a lot of individual ones? And then last but not least, you mentioned shortly and the revenues and the EBIT contributions or EBIT and -- sorry, the operational 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 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?

Yes. I saw that you referred to something like CHF 193 million for the wider in terms of sales and components and CHF 67 million in 2021 from Saurer?

This was 2018.

All right.

So in 2018, the winder business, including the service business, generated sales of EUR 193 million and an EBITDA of EUR 22 million. And the Accotex and Temco business generated EUR 67 million of sales and an EBITDA of EUR 12 million. This was in '18. 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.

And just one quick follow-up. In terms of integration costs on the Saurer transaction, what do you think would be a reasonable assumption for 2022 there?

So you can see in the annual report that we had last year, CHF 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.

The next question comes from the line of Andrew Gibbs from Otus Capital Management.

I guess this is more of a sort of -- sort of 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're currently showing, 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 middle – a lower-mix product, if you're one of your customers to build up the baseload 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 2 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? How much -- so the 23 million we divide by 5 -- divide by 2. And we've done, as you said, 1.5 billion to 2 billion. Where do you think that settles at half of the half or what do you expect?

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 have a very favorable gross margin and others, which have a less favorable gross margin. This is where the mix 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. Yes.

But -- and therefore, what the cycle this question here, I guess, is this 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 products.

No, no, no, no, no.

However, at the same time?

No. Customers who are investing outside China, invest in premium. There is no cycle in terms of building up spinning industry in a country like Honduras or Egypt or Bangladesh or Pakistan, yes. Customers who decide to invest in this country, invest in premium. And the settlement, where will this point be from the CHF 23 million down from the CHF 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 domestic -- with yarn that will be produced domestically, yes? Why even I mean in Europe, this doesn't happen anymore or the yarn that comes from elsewhere. So -- but this is speculating, yes. What we saw so far is CHF 1.5 million to CHF 2 million, and we expect it to continue.

Okay. And I sort of interrupted you, sorry, when you're just saying about the different mix, some of your products have a very high gross margin contribution. What is it about then? Is it a market share situation you have in those products that creates that product?

Separate discussion. So let's not go into the details of our product portfolio. Do you want to talk about that? We are always available for a discussion.

The last question comes from Marc Saint John Webb from Quaero Capital.

Just a question to trying to understand whether the rise that you're talking about in material costs and component costs, what is the different impact whether you're 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 the low prices for a high-end machine. And therefore, the overall impact might imagine might be less on the premium machines.

No. The premium machine has a lot of electronics and semiconductors, yes. 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.

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