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Edited Transcript of RIEN.S earnings conference call or presentation 10-Mar-20 9:00am GMT

Full Year 2019 Rieter Holding AG Earnings Call

Winterthur Mar 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Rieter Holding AG earnings conference call or presentation Tuesday, March 10, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kurt Ledermann

Rieter Holding AG - CFO

* Norbert Klapper

Rieter Holding AG - CEO

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Conference Call Participants

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* Armin Rechberger

Zürcher Kantonalbank, Research Division - Analyst

* Fabian Haecki

UBS Investment Bank, Research Division - Executive Director and Senior Analyst of Swiss Small & Mid-Cap Equity Research

* Santiago Domingo Cebrián;Solventis;Equity Portfolio Manager

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the media and analyst results press conference call 2020. I am Shai, the Chorus Call operator. (Operator Instructions) And the conference is being recorded. (Operator Instructions) The conference must not be recorded for publication for broadcast.

At this time, it's my pleasure to hand over to Dr. Norbert Klapper, CEO. Please go ahead, sir.

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Norbert Klapper, Rieter Holding AG - CEO [2]

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Thank you very much. Good morning, ladies and gentlemen, to this unusual [BMCAR] 2019. Yesterday, we decided to modify the format of the conference and to have a conference call only and no in-person meeting. We are all aware of the reason for this change. I thank you very much for your understanding and for having dialed in this morning.

Let me guide you through the key messages on Page 3 before I hand over to Kurt for the financials. 2019 was a year of contrast for Rieter. On the one hand, we had a low demand for new machines in the first 3 quarters, resulting in sales of CHF 760 million, which is 29% less than in the previous year. As a consequence, the EBIT from the ongoing business was minus CHF 9.6 million despite the cost reductions that we implemented, as we announced in January 2019.

On the other hand, we had a nonrecurring profit from the sale of real estate in Ingolstadt, which led to an EBIT of CHF 84.9 million, which is an EBIT margin of 11.2%. In addition, we have the successful introduction of innovations at ITMA 2019 in Barcelona and the introduction of the innovation starts to materialize. We will come to this point later. We had a major order intake from the Cotton & Textile Industries Holding Co. in Egypt, and the demand for new machines was picking up in the fourth quarter of 2019. So this is on the positive side.

The proposed dividend will be CHF 4.5 per share. This dividend proposal is a compromise between the extra profit from the sale of Ingolstadt on the one side and our ambition to pay an attractive dividend; and on the other side, the results from the ongoing business and the half year 1 outlook. We are convinced that in the light of the said above, this is a well-balanced proposal.

Let me now hand over to Kurt, who will walk you through the financials.

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Kurt Ledermann, Rieter Holding AG - CFO [3]

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Thank you, and good morning from my side.

Norbert Klapper mentioned that the financial year 2019 was a year of content for Rieter. On the one hand, there was the weak demand for new machines in the first 9 months. On the other hand, there was the successful market launch of innovations, the major order from the Cotton & Textile Industries Holding Co. of Egypt and the successful completion of the sale of real estate in Ingolstadt, Germany.

Let me highlight some of the key figures on Page 5. Strong order intake, especially in the fourth quarter, not only driven by the big contract from Egypt. The book-to-bill ratio for the full year was at 1.2, which demonstrates the growing business. Sales were weak due to the trade conflicts between China and the U.S., excess capacities in spinning mills and general, political and economic uncertainties in markets important for Rieter.

The gross margin increased slightly to 27.6% despite a huge volume reduction. This is mainly driven by a positive mix effect. The business group, Machines & Systems, with a margin below the average of the group, lost most of the volume. The EBIT margin of 11.2% includes the nonrecurring profit of CHF 94.5 million for the sale of real estate in Ingolstadt. Without this, the EBIT would amount to minus CHF 9.6 million. This negative EBIT is caused by the low sales volume in all business groups. Strict cost reduction measure's partly compensated for this effect. Sales, general and administration expenses could be reduced by CHF 26 million or 12%. The innovation program, however, was continued as planned. For details, please refer to Page 44 of the Annual Report 2019.

Net profit was positively influenced by some CHF 67.2 million from the real estate sale just mentioned. The difference to the EBIT effect is the tax on this gain. The group tax rate increased from 25% to 39%. This is due to the profit from the real estate sale in Germany, which were taxed at an above-average group tax rate. In addition to this, noncapitalized tax losses had a negative impact, too.

Order intake by business group. Overall, order intake was 7% above previous year, and the book-to-bill ratio was at 1.2 compared to 0.8 in 2018. With CHF 562.8 million, the business group, Machines & Systems, booked a 20% increase versus 2018. The book-to-bill ratio is at a high level of 1.4. These orders include the CHF 165 million from Egypt.

The business group, Components, had to take a 15% hit compared to previous year, mainly due to the lower level of investments by customers of the business units, SSM and Suessen.

The business group, After Sales, was slightly above previous year. The order backlog for the group at December 2019 amounted to CHF 500 million compared to CHF 325 million at December 2018.

Sales by business group. The reporting year 2019 was characterized by the trade conflict between the USA and China, excess capacities in spinning mills as well as political and economic uncertainties in regions of importance to Rieter. This led to an overall sales decrease of 29%. Against this background, the business group, Machines & Systems, was confronted with a striking decrease of 42% or CHF 280 million.

The business group, Components, recorded a drop in sales of 12%. This is attributable to the reluctance to invest in the markets, which primarily affected the business activities of SSM and Suessen.

The wear and tear parts business, however, continued at a normal level. With sales of CHF 140.8 million, the business group, After Sales, recorded a slight decline of 2% compared to previous year. This is mainly due to the lower volume in the machine business and the associated lower demand for installation services. However, in the spare parts business, After Sales generated sales at the level of the previous year.

Sales development by region. The biggest sales drop per region in 2019 came from Turkey with minus 57%; followed by the Asian countries and India, both with minus 32%. In China, the decrease with minus 8% was relatively moderate, and North and South America with minus 3% could almost maintain the previous year's level. In the Europe region, sales fell by 13%; while in the Africa region, Rieter recorded a decline in sales of 55% on a relatively small basis.

Operating results business groups. The business group, Machines & Systems, was confronted with a sharp drop in sales, which led to a decrease in operating profitability to minus 13.1% or minus CHF 50.2 million (sic) [CHF 50.8 million] despite strict cost saving measures. Regardless of this situation, the innovation program was continued as planned.

The business group, Components, suffered from the low sales and deliveries to Machines & Systems, which led to a decrease in profitability. While implementing the cost-cutting measures, we always factored in that we need to be able to ramp up the business, especially in view of increasing orders.

The increase in operating profitability to 16.5% of sales in the business group, After Sales, is mainly due to the one-time costs in the year 2018. The corporate operating results includes the nonrecurring contribution from the sale of real estate in Ingolstadt of CHF 94.5 million.

As you can see on, Page 10, there are 4 main effects that influenced the EBIT compared to previous year: first, CHF 94.5 million of nonrecurring profit from the sale of real estate in Ingolstadt; second, a huge volume effect that led to a lower margin of CHF 82.4 million; CHF 26 million of savings in sales, general and administration expenses due to the cost-cutting measures; and four, stable R&D expenses since we did not save on innovation programs.

There are 4 noteworthy points I want to highlight in the balance sheet on Page 11: first, the high net liquidity position of CHF 162 million; second, the equity ratio increased by 3.2 percentage points to 47.8%; third, a negative net working capital that means that inventory and receivables could be financed by current liabilities; and fourth, the CHF 100 million bond due in September 2020 had to be reclassified from noncurrent to current financial debt.

The free cash flow on Page 12 in 2019 amounted to CHF 42.3 million, thereof, plus CHF 93.6 million related to the sale of the real estate mentioned several times before. This amount is included in various position of the cash flow statement. For details, please refer to Page 49, 50 to -- of the Annual Report 2019.

Free cash flow was also influenced by the lower sales volume and an increase in net working capital, the latter mainly due to the lower payables compared to 2018. The negative impact of provision is due to the fact that previous year's restructuring provisions for Germany turned to cash outflow in the reporting year 2019. CapEx, finally, was a bit higher than in the previous year and include first investments into the CAMPUS project. Again, CapEx is clearly below depreciation and amortization.

Net profit and dividend proposal. The Board of Directors will propose to the Annual General Meeting in 2020 a dividend of CHF 4.50 per share. This dividend proposal strikes a balance between the extra profits from the land sale in Germany and results from ongoing business as well as the expectations for half year 1 2020.

Last, but not least, the change in the workforce. The total reduction amounted to 17% or 990 full-time equivalents. Temps, who are mainly in direct production, saw a decrease of 73% due to the lower production volume. But also the permanent staff was reduced by 11%, a result of the before-mentioned cost-cutting measures.

With this, I close my presentation. Thank you for listening, and I give the word back to Norbert.

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Norbert Klapper, Rieter Holding AG - CEO [4]

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Thank you very much, Kurt.

We are on Page 16 now. Before I come to the outlook, I would like to draw your attention to 4 points of relevance going forward. Page 16 shows the market sentiment in the fourth quarter, which continued in the first 2 months of 2020. You see where the market sentiment has improved compared to what we experienced in 2019. It is in the Asian countries, particularly in Uzbekistan, Pakistan and Bangladesh. It is in Turkey and, obviously, in Africa. And when we ask our customers why they invest now, they tell us that they received additional orders, which have been placed with Chinese suppliers before. And they mentioned the innovations, which Rieter introduced at ITMA in Barcelona.

The second point of relevance, which I would like to highlight, is the program which the Cotton & Textile Industries Holding Co. of Egypt placed with Rieter. You see on the picture on Page 17, Mehalla. Mehalla is the biggest industrial complex in Egypt. It is completely dedicated to textile production with a workforce of 16,000. It is in the Nile delta. In Mehalla, Rieter will supply machines for the world's biggest spinning mill under one roof with more than 180,000 spindles and 3,000 rotors. The total volume of the contracts, which we have signed, amounts to CHF 210 million, including the contracts which had been signed at ITMA in Barcelona. We expect the full amount of orders to be booked as order intake in the first half of this year. So far, we have booked 170 -- CHF 165 million, sorry. The sales we expect in 2020 will be around CHF 60 million.

The third point of relevance I would like to highlight is Rieter CAMPUS. We applied for a building permit for the Rieter CAMPUS at the end of 2019. The Rieter CAMPUS comprises a new Customer and Technology Center as well as an administration building. And the Board of Directors has decided to start construction work on the Rieter CAMPUS provisionally during 2020, provided that the legally-binding building permits is issued in good time.

The fourth point I'd like to highlight is the next exhibition, which is coming up, in Istanbul in early June. And I'm not going to talk too much about it, but based on the innovation program, which has been implemented, which we have been implementing for quite some time, we had a very successful ITMA in Barcelona. And we are convinced that for the same reason, we will have a very successful ITM in Istanbul as well.

Let me come to the outlook. And I'm going to proceed as follows. I will read the outlook to you and then comment on the 3 first lines in detail to better explain what this is all about. The first statement here in the outlook is, as already reported, Rieter expect sales and earnings in the first half of 2020 to be significantly below the prior year level. The positive market sentiment in the fourth quarter of 2019 has continued in the first 2 months of 2020. Hence, sales and operating results in the second half of 2020 are expected to be above the prior year level. The capacity adjustment program announced in January 2020 is proceeding according to plan. And the effects of the COVID-19 virus, which cannot be definitely determined at the present moment in time, will be relevant for the year as a whole. Rieter has taken the appropriate precautions to protect employees and to keep the promises made to customers wherever possible.

Now let me comment on the first statement, half year 1 '20 below half year '19. In half year 1 '19, we had sales of CHF 460 million and a loss of CHF 1.2 million on the EBIT line. Half year 1 '20 will be below these numbers. This is the consequence of the low order intake we had from Q1 to Q3 '19, CHF 525 million. Now the obvious question is what means below. Well, that depends on the business with wear and tear parts and spare parts, and we don't know at the moment what the corona impact on this business is going to be.

The second statement in the outlook refers to the positive market sentiment. And I would like to ask you to follow me with the numbers here. In Q4, last year, we had an order intake of CHF 402 million. If we take away Egypt, CHF 165 million, this gives us for the first -- for the fourth quarter CHF 237 million, which is a monthly run rate slightly below CHF 80 million. And this is the order of magnitude which we have also seen in January and February.

The second statement in the second line here is half year 2 '20 above half year 2 '19. So what is this all about? Half year 2 '19 was at CHF 344 million sales, and the loss, without taking into consideration Ingolstadt, was at CHF 8.4 million. We expect half year 2 '20 above this level. And again, the obvious question is, what means above. Well, that depends on the order intake in March, April, May and June because this order intake will still turn into sales this year. And obviously, we don't know what impact corona will have on these numbers. So that is all we can say at the moment.

And the third statement is about the capacity adjustment program. I can tell you that in our Components business group, implementation has started. We talked about roughly 90 jobs, 90 positions there. And in Winterthur, there is the consultation phase going on. It will end tomorrow, and we will inform about the results as soon as we have talked to the works -- workers' council about it.

All right. So far, the outlook. And I guess, we are ready to take questions now. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Fabian Haecki, UBS.

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Fabian Haecki, UBS Investment Bank, Research Division - Executive Director and Senior Analyst of Swiss Small & Mid-Cap Equity Research [2]

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Just a few questions. Firstly, the obvious corona question. Can you give a bit of more flavor and explain to us what happened now in the first 3 months? Did you have any interruptions in your plants? Is it now all up and running, let's say, at normal conditions? Or do you see -- have some constraints? Do you have some issues on your supplier base? Or is this also running? What do you hear also from your customers, the spinning mills in Asia, in China and elsewhere? That would be my first question.

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Norbert Klapper, Rieter Holding AG - CEO [3]

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All right. Thank you very much, Fabian. I will try to answer that questions. Just in -- when we look at corona, we look at 3 dimensions: number one, the Rieter units, our people out there in our organization around the globe; second, our supply chain; and third, the markets. Let me come to the first point, the Rieter units, our people worldwide, and, explicitly, I would like to say, not only in China. We have precautions in place, as you would accept, just to mention the most important ones, travel restrictions and meeting restrictions. So that is in place, and our people follow it. So far, we have had no infections in our staff, and everybody is following the instructions.

We move on to the second point to the supply chain. Our plants in China, we have 2 plants in China, went back to work on February 10 and February 14, respectively. The staff is on board. All plants are working as normal. Yes, we are fully operational, not only in China, but also in our other plants. We are in close contacts with our suppliers to ensure material supplies. At the present moment in time, there is only minor issues.

In the area of logistics, we are working on sea freight transportation, in particular, between Europe and Asia, not the other way around. There is some work to be done when we talk about shipments from Europe to Asia. So far, the supply chain. When we look at the markets in China, we get mixed messages from our customers, depending on the regions where we are and the corona policy that they apply. I told you already about the feedback we got from our customers related to orders, which seems to -- seemed to be shifted from suppliers in China to suppliers outside China.

In India, no impact yet. Asian countries, Turkey, as said above. And in the Americas, we see business on last year's level. So that is our assessment of the situation. And as you would expect, we are following up on it every day. And if there is a need to make it -- to change our policy or to change our precautions or to go after a certain issue, which we see in our supply chain, we react immediately. So far, no interruptions.

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Fabian Haecki, UBS Investment Bank, Research Division - Executive Director and Senior Analyst of Swiss Small & Mid-Cap Equity Research [4]

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Okay. Then my second question is on your Components business. That had shown quite an unusual weak margin resiliency with EBIT margin down from 9.3% to 3.8%. So you basically lost CHF 30 million on top line but CHF 20 million on EBIT. So this seems to be going just beyond the pure operating leverage. Is there anything you can share with us in terms of mix effect, order impacts? Or was it SSM that was also a particular drag within Components?

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Norbert Klapper, Rieter Holding AG - CEO [5]

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When you dig deeper into the numbers of Components, you see that they did not lose CHF 30 million. They lost CHF 60 million in top line. Because what we report here is sales per, and you need to take a closer look and look at the internal sales that this unit is also doing. And this is the shipments that they do to RMS. So the total volume that they lost exceeds CHF 60 million, and that explains why the EBIT is so low. We made a couple of decision in Components to keep our production capacities up to the level where we had them before to be ready to react when the market is coming back.

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Kurt Ledermann, Rieter Holding AG - CFO [6]

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Just to add on Page 51 of the annual report, you see this detail Norbert just mentioned.

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Fabian Haecki, UBS Investment Bank, Research Division - Executive Director and Senior Analyst of Swiss Small & Mid-Cap Equity Research [7]

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No, I mean I know the difference between the third-party revenues and the total revenues, but still, I mean the margin decline was extremely sharp, to be honest. Well -- but I'm fine with that explanation.

And then my third one is on free cash flow, which was negative. Normally, when you got a relatively sharp sales decline, you rather -- we rather see a liquidation effect of the net working capital. But here, okay, you explained the restructuring provisions, but then the -- what we also saw is that the payables did go up quite significantly. Is there anything we should read out of it? Or is it just a certain volatility and should reverse next year? Or how should we read the net working capital development business?

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Kurt Ledermann, Rieter Holding AG - CFO [8]

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The net working capital, it's always a tiny sharp at the end of the year. So it's not reflecting the average over the year. So it's, sometimes, a little bit difficulty can have huge effects, which disappear 2 days later. So this is a certain part of it.

The biggest change, and I think I mentioned it in my presentation, was the payables that were higher in the last year and came down with the business. And this was the biggest impact of net working capital. And as you mentioned it, of course, there was the restructuring provisions who were -- had a payout now in this year, but was provisioned last year that had also a major effect on the free cash flow. But I will not read more out of this. It's not structural changes of our free cash flow and things like that. It's not.

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Operator [9]

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Next question comes from the line of Santiago Domingo of Solventis.

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Santiago Domingo Cebrián;Solventis;Equity Portfolio Manager, [10]

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My first question is related to spindle deliveries during the last year. Normally, the spindle deliveries is around between 11 million and 13 million for first year. But that year, Rieter only delivered 1.3 million spindle deliveries. So what I would like to understand is if you could lose market share the last year or is the market down below this between 11 million and 13 million?

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Norbert Klapper, Rieter Holding AG - CEO [11]

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Well, from what we know, we didn't lose market share. The market was really flat. We know this also from what we hear from our competitors. And the market was down. We were, last year, in the trough. The market was in the trough of the cycle, and Rieter didn't lose market share in a significant way.

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Santiago Domingo Cebrián;Solventis;Equity Portfolio Manager, [12]

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So if you sold -- you delivered during the 2018 2.1 million more or less spindle deliveries you had, and the last year, you had 1.3 million, so the market was down so heavily during the last year, not only for you, for the whole market, right?

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Norbert Klapper, Rieter Holding AG - CEO [13]

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Yes.

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Santiago Domingo Cebrián;Solventis;Equity Portfolio Manager, [14]

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Okay. And my second question is related to financials. I think you have a bond that is going to expire during this year, 2020. What I would like to know is, what are you thinking about to do with this bond? Are you going to repay? Are you going to refinance? So what are you going to do?

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Kurt Ledermann, Rieter Holding AG - CFO [15]

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Yes. This is not decided yet. We are working on this, but, of course, we will pay it back in September.

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Operator [16]

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Next question comes from the line of Armin Rechberger, ZKB.

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Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [17]

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Yes. First question, we were talking about China and Turkey, but India, what's going on in India, and maybe a little bit more of the story in Turkey?

And then just about the situation with Uzbekistan and the likes. I mean they are gaining contracts away from China, but that was already the fact before the coronavirus. You connected it in your speech now to the coronavirus, but, to me, it appeared already the story before this. So why is that?

And maybe another question would be the usual on CapEx you expect in 2020 and tax rate.

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Norbert Klapper, Rieter Holding AG - CEO [18]

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Okay. So I'm going to talk about the markets and the CapEx and tax rate. I will then hand over to Kurt. Yes, India, there's not too much movement in India. What we saw in the last couple of weeks is early signs of a recovery, but it's too early to tell whether this really will materialize. In India, you know, we talked about it earlier. There is a massive overcapacity based on the fact that Indian spinners were shipping yarn to China, and this has not happened anymore as far as we've seen. And that means that in India, there's a huge idle capacity. We will see whether India will benefit from the changes in the market. As I said, some signs of early recovery, but too early to really say India is coming back.

Turkey and Uzbekistan, yes, I don't know whether this is really a consequence of corona or whether this is -- has happened before. Maybe corona has accelerated a process, which had started before. I guess that would be the right way to read the development. We hear from our customers that they have a business which they haven't had before. And it started in late 2019, but, I guess, we can say that it has accelerated since corona came on the table.

We were in China in early January before corona started. And by then, our Chinese customers were not concerned about losing business to others. So at least the big one's not. So I guess, we can really say it has accelerated the process.

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Kurt Ledermann, Rieter Holding AG - CFO [19]

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Okay. To your question on CapEx, we expect for this year CapEx at a normal level of around CHF 30 million -- slightly below CHF 30 million. This is except for the CAMPUS project. On CAMPUS project, it depends a little bit when we start the project, so we cannot really say at the moment how much will come this year. It will be not a huge amount this year, but it could have a certain impact.

On the tax rate, as I mentioned, tax rate this year was very high due to these 2 effects, this, let's say, above average tax rate in Germany for this real estate gain and not capitalized tax losses. So in a normal environment, I would expect the tax rate of around 25%. This would be the normal tax rate.

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Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [20]

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So CAMPUS, can you give us a hint? I mean will it be CHF 60 million? So will it be CHF 10 million?

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Kurt Ledermann, Rieter Holding AG - CFO [21]

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No, it will never be CHF 60 million this year. It really depends. If you can start with the building in July, it will be a different number when we start in November. But it will be...

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Norbert Klapper, Rieter Holding AG - CEO [22]

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Rather CHF 10 million than CHF 60 million.

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Kurt Ledermann, Rieter Holding AG - CFO [23]

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Yes, yes, yes. I would say anything between CHF 5 million and CHF 15 million of that, but...

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Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [24]

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CHF 5 million and CHF 50 million? CHF 5 million and CHF 15 million?

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Kurt Ledermann, Rieter Holding AG - CFO [25]

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CHF 15 million.

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Norbert Klapper, Rieter Holding AG - CEO [26]

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1- 5. Yes, 1-5.

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Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [27]

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Okay, okay, okay. Yes. And the other question, you were mentioning your massnahmen plan. The restructuring is going on -- well underway as planned. What are your plans now? If I'm right, you were planning about the reduction of personnel of about 5%. Is that still a valid figure or some news?

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Norbert Klapper, Rieter Holding AG - CEO [28]

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No. I mean 5% was last year, yes? And we did it. We did more than that last year. And what is on the table at the moment is a reduction of positions in our Components business of 90 and the reduction of positions in Winterthur of 87. And the 90 in the Components business are underway. We have agreements with the workers' council in the different places, in the different plants. And we are doing what we said. In Winterthur, we are not that far. The consultation phase is -- has not ended yet. We will have the final meeting tomorrow. And as soon as we have communicated with our workers' council, workers' representatives in Winterthur, we will publish the results.

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Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [29]

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Okay. And another additional question, just a minor one. Did I get that right? You expect the rest of the Egyptian order to be booked in first half year, and it will be around CHF 60 million, the rest, all the contracts together?

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Norbert Klapper, Rieter Holding AG - CEO [30]

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Yes, CHF 45 million is what is still open, yes? We booked CHF 165 million. The total is CHF 210 million. The difference between CHF 210 million and CHF 165 million is CHF 45 million.

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Kurt Ledermann, Rieter Holding AG - CFO [31]

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The CHF 60 million are what we expect the sales in the second half of this year.

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Operator [32]

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(Operator Instructions) The next question comes from the line of [Michael Graff].

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Unidentified Analyst, [33]

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Yes. Concerning Winterthur, you talked about the reduction of staff in the assembly. Will there be also any white collar jobs affected by restructuring programs?

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Norbert Klapper, Rieter Holding AG - CEO [34]

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The 87 jobs is what we're talking about. And these 87 positions include jobs, which are part of the assembly operation in Winterthur. This is blue collars and white collars.

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Unidentified Analyst, [35]

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But on top of that, there will be no further -- there are no further reductions in Winterthur plant at the moment?

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Norbert Klapper, Rieter Holding AG - CEO [36]

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There is no plans to do further reductions in Winterthur at the present moment in time. We don't know how the market will develop. But for the moment, this is the decisions we have been making, and that is what we will discuss with the workers' representatives tomorrow.

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Operator [37]

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That was the last question.

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Norbert Klapper, Rieter Holding AG - CEO [38]

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Really?

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Operator [39]

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We have a follow-up question from Santiago Domingo.

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Santiago Domingo Cebrián;Solventis;Equity Portfolio Manager, [40]

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Sorry for disturbing you again, but I would like to ask to you about the prices during the last year because it's true that the market goes down for a lot of you, but I would like to understand what's your way to doing if you are dealing with pricing pressures? Or you are not going to enter in that war?

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Norbert Klapper, Rieter Holding AG - CEO [41]

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Well, we are a premium supplier and we ask for premium prices. And of course, the prices were under pressure last year based on the capacity load of our competitors. And there is, of course -- in times like this, sometimes, there is a need to make a price concession, but our policy, our -- the way we think about prices has not changed, yes? We ask for a price premium because our machines are premium, and our customers can make more money with our machines than with anyone else's. And this is what we expect to be reflected in the prices. Our customers don't like this idea too much, but it is what it is, yes? And we don't go into a price war. And we'd rather let a piece of business go than making a price concession, which is too hard or too much. That is our policy, and we have carried this through in 2019. And we will continue to do so.

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Santiago Domingo Cebrián;Solventis;Equity Portfolio Manager, [42]

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Okay. And a follow-up question also is related to technologies. Did you see any kind of disruptive technology right now in the market during the last year or some of them that you weren't aware of them? Or you don't see any kind of disruption in your business?

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Norbert Klapper, Rieter Holding AG - CEO [43]

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No, we don't see a disruptive technology.

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Operator [44]

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(Operator Instructions) The next follow-up question comes from the line of Armin Rechberger.

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Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [45]

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Yes. Yes, disruptive technologies. Air-jet is one of your new later technologies. How is your experience there? Have you got some good pickups? Or what's going on?

And then you -- on the ITMA in Barcelona, you introduced an interesting robot. How -- does this been -- has it been taken up by the market? And one more question later.

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Norbert Klapper, Rieter Holding AG - CEO [46]

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One more question later. Okay, air-jet, we have a couple of nice orders, which we booked based on our air-jet machines, including our air-jet machines recently. So we are quite happy with what's going on there. And ITMA Barcelona, the robot, yes, I was in the U.S. last week, and I had the opportunity to see the robot working in -- with -- for -- in the plants of our U.S. customers, and I was very happy about the progress.

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Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [47]

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So air-jet, you're happy with that so far. You will proceed with this project?

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Norbert Klapper, Rieter Holding AG - CEO [48]

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Of course, we will.

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Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [49]

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Of course. Okay. And then my last question. I mean you were mentioning huge overcapacities in India, one of the most important markets; then China, the most important market, also with huge overcapacities. Now Uzbekistan and Bangladesh and the likes are building up capacities. On top, you had a huge contract in Egypt. So that looks like a very uncomfortable situation for me for the future, for the next 4 to 5 years, for your business. Or can you put some positive aspect from it maybe?

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Norbert Klapper, Rieter Holding AG - CEO [50]

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Well, what is important is the competitiveness of a capacity, yes? And overcapacity is a problem as long as new capacities which go on stream are at the same level of performance in cost per kilo yarn as the capacities which are already installed. What is important is to create a benefit for the customers who are investing in new capacities. So a superior competitiveness. And that is why a player like Rieter does innovations, which has only one objective in the light of -- of the eyes of the customer, and this is to help him to make more money with his machines, which means to create a competitive advantage for him.

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Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [51]

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Okay, but still huge overcapacities dominant in the markets.

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Norbert Klapper, Rieter Holding AG - CEO [52]

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It is very hard to assess to what extent capacities have disappeared. We hear from customers who just put their mill aside and don't work anymore, but they don't close it officially and they don't scrap the machines. We hear from customers who have reduced their capacity load to 50%. It comes in different flavors, and it's very hard to say whether overcapacity is still there, or is potentially still there, or it really has disappeared.

Our direction, our strategy is really clear, help the customers who invest in Rieter to create a spinning operation, which has a superior performance, which has lower cost or a better yarn and help them to win in their battlefield, in their competitive battlefield. And that is what this is all about.

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Operator [53]

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We have another follow-up question from Santiago Domingo.

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Santiago Domingo Cebrián;Solventis;Equity Portfolio Manager, [54]

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Yes. Last question is related to your corporate costs, all of them that are unallocated in your segment information. I would like to understand how much is it, the headquarter costs, all of them that are not assigned to Machinery, Components or After Sales segment, please?

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Kurt Ledermann, Rieter Holding AG - CFO [55]

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Page 51, I think, of the annual report, just let me double-check, you find the details. So the total -- so on the slide I presented just before, so you see it also on slide -- Page 9. You see the corporate costs of CHF 101.8 million plus, and then you deduct the CHF 94.5 million from Ingolstadt, and then you see the effect of the corporate without Ingolstadt. But what exactly was your question, how much the corporate costs are?

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Santiago Domingo Cebrián;Solventis;Equity Portfolio Manager, [56]

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Yes, what I would like to understand is when you evaluate the business per segment and you see the dynamics of each segment, what I would like to know is how much headquarter costs, IT costs, all that kind of costs that are corporate costs needed to support all your business.

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Kurt Ledermann, Rieter Holding AG - CFO [57]

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So we -- all the costs that we can allocate to the business, we allocate to the business. And the rest is non-allocatable costs that we keep in the corporate costs. But it's -- of course, it's a bit mixed, and it's positive this year even if you deduct Ingolstadt gain. So it's a positive effect because we have many other effects in there.

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Operator [58]

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That was the last question.

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Norbert Klapper, Rieter Holding AG - CEO [59]

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All right. So thank you very much, and thanks again for your understanding related to the fact that we didn't have an in-person meeting today for the conference call. And I really appreciated the way you took that, and I appreciated the questions and the discussions. Thank you for that, and we are looking forward to talking to you again in summer. Thank you so much.

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Operator [60]

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Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.