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 air-jet spinning machine J 70. 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 Rieter. 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. The 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 Rieter. 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 Rieter 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, Rieter 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 dampened 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 CHF 542 million. 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 CHF 650 million 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 CHF 3 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, India, China, and Africa, due to our large contract with the Cotton & Textile Industries Holding Company in Egypt.
We expect that the market in China will remain strong. Then Asia is coming back, and finally Europe and Americas. 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 2021 and 2022. 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. Now, 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 economic 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 CHF 62 million 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 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%-4% in a low scenario, 4%-8% in a mid scenario, and 8%-12% in a high scenario. Now to slide 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 CHF 650 million, whereof around CHF 100 million will not be executed in 2024 or will be cancelled. Therefore, we will have around CHF 550 million sales in 2024 coming from this backlog. We can expect that around CHF 250 million will come from order intakes in 2024 in the business groups of the sales and components, as their book-to-build cycle is only four to six months. So we will need around CHF 200 million 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 showed 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.
We have to make sure that also at the ITMA 2027 in Hannover, our customers are delighted by the next generation of innovation leaps. 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 conversion costs 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 types of material transport, and digitization for the perfectly running spinning mill. On slide 16, you see our R&D spending 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 Streuli 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 a 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 CHF 101.7 million, including the positive effect from the sale of land in Winterthur and the negative effect from restructuring costs on the performance program Next Level.
Cash generation improved significantly over the previous year, which resulted in a net debt reduction of CHF 94.4 million. Order intake, on the other hand, marked the lowlight 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 CHF 650 million 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 Winterthur 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 CHF 51.3 million 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 CHF 3.5 million 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 CHF 72.5 million and the negative effect from restructuring costs, predominantly driven by the performance program Next Level, in the total amount of CHF 54.6 million. 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 CHF 650 million, 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 CHF 1 billion of 2024. As indicated by Thomas earlier, we anticipate to win the required orders in the machines and system segments in the coming months, whereas the after-sales and component sales are characterized by faster book-to-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 CHF 200 million compared with 2022.
The better cash generation was driven by enhanced operating performance, the sale of land in Winterthur, and an overall improvement in net working capital versus 2022. Consequently, our cash flow from operating activities amounted to CHF 69.3 million in 2023, which marks an improvement of more than CHF 140 million compared to the previous year and is predominantly driven by a higher profitability, as explained before, and the reduction in net working capital. Free cash flow from investing activities in 2023 amounted to +CHF 49.4 million, which includes the cash proceeds from the land sale in Winterthur in the magnitude of CHF 89.1 million. Excluding the sale of land in Winterthur, investing cash flow amounted to -CHF 39.7 million, 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 CHF 96.4 million on the back of a low order intake, net working capital was reduced by CHF 39.5 million, turning negative for the first time since 2021. On the one hand, the improvement in net working capital was driven by a significant reduction in receivables and inventories as a consequence of executing our existing backlog. On the other hand, advance payments from customers and accounts payable 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 net working capital, also played a role in the overall reduction.
The solid operating cash generation and the sale of land resulted in a substantial reduction in net debt by CHF 94 million, 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 four 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%. Onto 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 a low sales scenario in 2024. Rieter 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 CHF 3 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 Rieter. We will take these topics into account in the further development of our sustainability strategy. 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 dampened 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. Rieter expects demand to increase in the coming months.
For the full year 2024, Rieter anticipates sales in the region of CHF 1 billion 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?
Thanks, Thomas. I'm happy to do so. Ladies and gentlemen, we will start the questions here in the conference room in Winterthur and afterwards open the lines for the participants in the conference call. Then we will take the questions from the webcast. As usual, the Q&A session will be recorded. I kindly ask all participants here in the room to wait for the microphone and mention your name and company you work for before asking your question. Who will start first here in the room?
Thank you. Johannes Born of Centre Invest. I have a couple of questions, but I start one after the other. I'm wondering what the risk of further cancellations are still in this current market environment. Second question, if you allow, on the cost base, you significantly reduced the cost base. Now, if that holds true, that the market is going to turn in the next couple of months, if I may say, what is going to happen to your costs? So you are in a kind of a downturn now on very lean cost and, let's say, personal capacity level, so that you'll be forced to increase again the cost situation, or how should you understand that? And then the third question would be on markets. You point out that China and India are picking up, at least slightly.
Can you give some more color to this recovery, if I may say? Where does India and China invest given the relatively low capacity utilization, particularly in China? Is that capacity? Is it replacement? Is it innovation, or is it all of that? And related to that, what do we see in the U.S.? Is there some relocation demand coming up, so bringing the whole textile industry back into the States? Thank you.
Thank you, Johannes. A lot of questions, I may say. So if I have recorded correctly, first, risk of cancellations. We are used to a certain rate or cancellation rate, which is something like a little bit more than 5%. We do not expect that this cancellation rate will increase. Always, when you go through your backlog by the end of the year, then, of course, you are also looking whether there is the one or the other order which has to be cancelled. I would say this CHF 650 million I mentioned, about CHF 100 million will be shipped in 2025. And maybe there is the one or the other cancellation, but we do not expect any change in our cancellation rate. The second question, cost base. I think what we have done in 2023 was to adjust our fixed employee headcount to a low scenario.
Because what we do want to avoid in the future is that we also have to fluctuate our internal resources. When the market is going up, then we are hiring hundreds of people. And then when markets are going down, we have to release hundreds of people. So any change now upwards will be as a consequence, we will hire temporary personnel. Because the major part we will need is in the production area. These are usually lower qualified employees. And it's easier to find them in the market than in Germany, you would say, so-called Fachkräfte, which then becomes much more a difficulty in the future. So when we made our adjustment of the workforce, of course, the best people we were keeping on board, maybe we had to change the job temporarily for them.
But when the market is coming back, we can bring them back to the original job profile and add temporary people. Third question was about market. China has historically always a very low utilization of the spinning mills. It's, for whatever reason, far beyond the, let's say, 80% we usually see in other markets. We have seen that it was increasing from 50%-55%. And we also see the requests or the customers asking for offers. And we are on a very solid level there. Chinese customers are investing either in China for China or they are investing outside of China, either in Vietnam or in Indonesia or in Middle America for supplying towards the rest of the world. That's usually how it works. And India, we also have seen now really an improvement of the utilization in the last couple of months.
The figures we have shown here on the slide were more the average for the total year. It was lower at the beginning of the year. We saw that in the second half of the year, there was a pickup. Usually India is reporting their financial results by the end of March. Like in many, many industries and companies, after you have done the financial year, you take a big breath and then you start to reinvest again. We believe that in the second quarter, we will see that there are more activities coming from India. In the rest of the world, the U.S. is depending on automation. As they have a huge labor shortage, and I just was last week, the whole week in the U.S. visiting our key customers, they are quite confident about the future.
They have increased their capacity utilization in the first couple of weeks, 2024. They also have some nearshoring in Middle America, which runs pretty well as well. But their focus, and I think they are like the front runners for the whole industry, their focus is to automate. Because this industry, for 200 years, was hunting cheap labor. Because it's a very labor-intensive industry. And we were hunting all the time cheap labor. If the labor was cheaper somewhere else, then everybody was moving to that market. Now there is not so much cheap labor anymore in the world in a stable environment. So everybody now has to upgrade existing spinning mills. And new spinning mills also have to have a really state-of-the-art automation and digitization level. And this is exactly what we are focusing on. These are key priorities for us, automation and digitization.
I think the team has done really great work. As an example, our ROBOspin. To give you an insight, the ROBOspin, when there is a yarn break, it brings the two ends together again and is piecing it that the whole yarn processing can continue. In the past, this has been done by operators. So they went to that spindle and had to bring the two ends together. Now the ROBOspin is doing this piecing automatically. It's a key work in a spinning mill. Today, we already do more than 1 million piecings per week with our ROBOspins we have deployed worldwide. I think it will continue into that direction. Thank you. Other questions from the room?
Yes. Hello. I have 2-3 questions. The first one would be on your other expenses. I think in the annual report, there's miscellaneous other expenses of CHF -15 million versus last year CHF -2 million. Could you maybe elaborate on that? I think there is a footnote saying it has to do with some sort of cancellations. Is that kind of like a normal figure that we should expect going forward, or is this a more extraordinarily high figure?
Overall, cancellations remained on a similar level like last year. I would like to do a follow-up on the specific details on the other expenses.
Yeah, sure. No problem. Then on the second one is, I think last year you announced the cost savings of around CHF 80 million with your Next Level program. Are you on track with that one? I think, if I remember, two-thirds were expected to materialize in 2024. Is that correct?
Yes. As we announced previously, of those CHF 80 million, we expect them to roll in, to fully roll in, in the course of 2024. We continue to be on track with that.
Okay. Thank you. And then last one, just in terms of products, has there been any sort of developments regarding the topic of recycling, maybe for natural fibers, but maybe also man-made fibers? I know in the past this has been kind of like a topic, but of course, a very challenging one. I'm just curious on recent developments in this field.
I think recycling is a key trend. Today, only when you take garments, so clothes, today, only 1% of the clothes are recycled. 99% are somewhere burned. Of course, the whole textile industry is an energy-intensive, water-intensive industry. So if we want to create a better planet, we have all to work on recycling. The big brands, the consumer brands, they are pushing a lot towards recycling. Now, recycling, of course, has a big challenge or several challenges. One challenge is that you have to somehow bring a fabric back to fibers that you can spin them again. These are tearing machines. You have either mechanically, you are bringing those fibers, or you can do that also chemically. Depends a little bit what is your raw material. Cotton, usually, you have mechanical recycling.
And when you go more into man-made fibers, very often you have chemical recycling. We are focusing mainly on the mechanical recycling. Now, there are two elements. You can have post-production, pre-consumer fabrics. This means when you tailor clothes and you have waste of fabrics, this is easier to recycle because you still have the original clean garment. When you have post-production, post-consumer recycling, then it becomes a little bit more difficult because sometimes you have a mixture of fibers. You have some polyester combined with cotton. So this makes it a little bit more complicated. Now, when you take all those fibers apart, the key challenge is when you do that mechanically that you somehow destroy some of those fibers. And the fibers are very short. So it's much more difficult to spin them again.
Now, we have developed in our product roadmap ring spinning machines, but also rotor machines, together with additional technologies like compacting, where we are able to add 60% recycled fibers, 40% virgin fibers. And then, of course, you still get some short fibers out. And the end product is then 50/50. There is nobody else in the market who has that type of achievement so far. And this is one of our key priorities we are pushing. I think this is a competitive advantage we have. And we also believe that towards the future, this will help us to get in certain segments more market share. Other questions from the room?
Emir Amaneh from ODDO BHF. Thank you for taking my question. What do you foresee in terms of?
I give that to you, Oliver.
Sure. Of course, we continue to work on net working capital improvement potentials. Specifically, I believe that on the inventory side, we can further improve, of course, after normalization against the supply chain crisis of the last 2-3 years. On the accounts payable side, of course, I also see further potentials to improve. The biggest, I would say, uncertainty, of course, is around the advance payments from customers. Personally, I expect if we were to see recovery in the market, that this position should also go up versus 2023.
Thank you. Any other question here from the room? Otherwise, I think Relindis, we can move.
We will now open the lines for the participants in the conference room. Vicky, may I ask you to open the lines, please? I see the first participant is Walter Bamert to ask a question.
We have a question from Mr. Walter Bamert of Zürcher Kantonalbank. Please go ahead.
Good morning, everybody. Thank you for taking my question. It's impressive to see how you delivered on the cost structure. But are you also disappointed a little bit by the slow pickup in the order development, or is that still fully on track compared to what you said a quarter ago or even a half a year ago? Yeah.
So the first one is not a question. It was more a statement. Thank you so much. We worked really hard on the cost structure. And it was a necessary but also really painful exercise. And yes, you are right. There was a sour note in our financials, and this has been the order intake. And in all fairness, we were also disappointed by some of the postponements of orders in the last quarter of 2024. Now, what we have announced a couple of days ago, this was, for example, one of those orders we have seen to come in the last quarter 2023. And so it has somehow swapped into the first quarter 2024. And there are others to come. So the way how we work is, first of all, we are trying to give as much as possible support in the financing areas.
The reason why some of those orders have moved forward for weeks or a couple of months was more the financing, getting the financing in some of the countries. I mean, our key markets are not the easiest one for financing. If you take Turkey, Bangladesh, Pakistan, but even in India and China, it is not so easy. I think the market sentiment is improving. We have, of course, a list of jobs we want to close. These are even CHF a couple of hundreds of millions. We are tracking almost on a weekly basis. We know some of them will come up now in the next couple of weeks. We are confident that especially these CHF 200 million we need order intake in 2024 to become sales in 2024 is absolutely feasible.
Historically, when you go back even to pre-COVID times and you look on backlogs we had at the end of the year or at the beginning of the year compared to the sales volume we had in that year, we usually had five months of order backlog when we started into the year. Now we have almost seven months. We are just a little bit spoiled by the years 2021 and 2022 and 2023, where we were facing such a huge boom and we had incredible high amounts of backlogs. If you take this extraordinary peak away and you compare our starting point in 2024 with the years, historically, the last 10 years, it's absolutely normal where we are. It's just comparing to the last two, three years. We are getting almost in a heart attack and are totally shocked.
But the reality is this is absolutely normal in our industry. So we also had to learn that we are back to normal. So we know that with this backlog we have by the beginning of the year, it's definitely not the time to relax. But we have enough food ahead of us, and there are enough orders ahead of us that we are really confident we can go for this CHF 1 billion sales volume. And just to give you an insight, in the executive committee, we have an own group, WhatsApp group, and we are texting each other every day the orders we are getting on board. And whether this is now in China or in Turkey or in India or even in Tajikistan, we just had booked a bigger order.
So we feel, I feel that this momentum has come back, that people are excited to really hunt for jobs. So I don't relax, and I don't want to be arrogant, but there is a certain confidence now in the team back after these very dry months we have seen for almost one and a half years. It was a long answer for a short question.
Very good. So I would move on to the Shanghai order, the first big one we have seen reported. Is that the biggest order you won since you are CEO? And can you tell us more about it? So is that a modernization order where they only replace the combers and the draw frames, or is there more elements to come? And who supplied the equipment that is still in place there that will not be replaced or will be replaced later? So better understanding what exactly works in China and what doesn't. And also, is this really a strategic partnership, and to which extent does it go beyond the typical modernization project?
Yeah. So it's not so difficult to be the biggest order since I'm CEO because we did not have so many orders, in all fairness. So yes, it is true. I think it has been the biggest new order in the last 12 months. And I know the customer very well. As you know, I have been living in China for a couple of years. And so my contribution to the team is that I have some maybe additional insight into that market. And China is a very important market. It's 40% of the installed base worldwide. And it's distributed all over China. Now, this customer is a customer which is very, very much focused on automation, digitization, and standardization. It's a customer which is the cost leader in the applications he is serving or they are serving.
They are working on cotton, purely on cotton, in Ne 30 and Ne 40. That's a standard application in our industry, what you have for shirts or for T-shirts or, well, really standard fabrics. He is one of the biggest spinners in the world, maybe even becoming the biggest one, fast expanding. He's somehow, to a certain degree, the opinion leader and the leader in this industry now in China. We have done no business with that customer in the past. This is really a new customer. It was for us a breakthrough. To win an order with such a customer means that even if we have a much higher price level than maybe local Chinese competitors, we were able to transmit a value proposition which made the customer confident to buy from us and not, again, from the Chinese competitors.
I'm sure that this somehow is like a light tower project for us which will impact also additional other customers to say, "Hey, I think it's pretty cool to work with Rieter because it seems that even the leader in our industry wants now to work with them. Yeah, they are very expensive, but they compensate that high price with higher productivity, with low energy consumption." Now, this first batch is mainly in the preparatory machines. But of course, in the strategic partnership, we try to find out together with this customer where do we have additional automation opportunities to work together to automate and digitize the spinning mill that at the end you almost achieve a spinning mill with no operators anymore. And this means we now will go along the value chain, and we will try to enter also into other product areas.
He's a customer which is doing ring spinning and compact spinning. So we will do also a test with that customer to present him our products in the end-spinning area. We will try to convince them that also there, it would be quite a good choice to choose us. So for us, yes, it's not only a big job. It's also really a very important customer who is highly demanding, highly cost-competitive. To win such a customer is only possible because our team has done a fantastic job. We went into competition like an Olympic game against the Chinese competitors. At the end, it's all about winning, and we won. I'm sure this has been like a bomb in that biggest market in the world.
Perfect. Just a little follow-up. Can you estimate what percentage of its combers and draw frames are being replaced by this order?
These are not replacements. These are not replacements. Sorry, you asked that before. These are expansions of this customer into new production facilities. It's not a replacement. It's additional spinning capacity.
The equipment he buys is from Chinese manufacturers for the time being?
Yes, correct. The products will be supplied by China. But what you have to know in all those machines, certain key components are delivered by our business group components. So we are delivering certain key components, mainly produced here in Switzerland but also in Germany. And we ship that to China. And in China, this is then included in the machine. And then the whole machine is supplied towards the customer. But there is a Swiss content and a German content for these key, precise components you need to make the perfect yarn.
But China is not ready for ROBOspin?
We do have, by the way, because you mentioned Shanghai ITMA, we have sold the first ROBOspins. At the ITMA in Shanghai, we also made a sales ceremony at our booth. Again, it's the same. When you come with a new technology, people want to see it. They want to see whether it works. And of course, I can say we make 1 million piecing, but we have no piecing in China. So at the ITMA in Shanghai, we sold the first five ROBOspins to a customer in China. And like here in this strategic partnership, this will become now also a leading project for us to show to other type of customers, "Hey, it works." Because China has the same topic within China itself. Labor costs have increased. Labor availability is not so much anymore like it has been in the past.
The Chinese customers will have to automate their spinning mills as well.
Perfect. Thank you very much.
Thank you, Walter.
As a reminder for telephone questions, please press star and one on your telephone to register. There are no telephone questions at this time.
Very good. So then we can close?
Yes.
Yeah, there is one more from the room.
Sorry. If we talk about technology and product, can you give us some idea how the air-jet machine is taking off? Who is asking and what kind of application you can run on these machines? And the second and last one then, finally, the supply chain issue. Whether you can elaborate a bit on how that has normalized or not or where are still the issues. Thank you.
Now, I'm a financial person by education. So I will try to do my best to explain a little bit about technology. Air-jet is a miracle. It's the most productive system you can have in the spinning area. You can say that one, let's say, air-jet position is making more or less 20 times more than a ring-spinning machine. So it's a lot about speed. And there is like a race. Now, our new air-jet machine, the J 70, has the possibility to produce 600 meters of yarn per minute, which is at the moment the fastest machine you find in the market. But air-jet is not only about speed. It's mainly about the quality of the yarn you are producing. What is the touch and feel?
So already at the ITMA in Milan and also at the ITMA in Shanghai, we were presenting fabrics which have been produced by our air-jet machines to show this touch and feel element to our customers. Now, the customers were extremely delighted about this touch and feel. Because at the moment, in this market, there is, let's say, one competitor who has almost 100% market share. Now, if you buy from this competitor, which is a very good one, by the way, how do you differentiate? There's no differentiation. You just add another couple of machines, and you compete with other thousands of machines. Now, our air-jet machine gives this different touch and feeling. So if you want to differentiate, you call it in the yarn language the Griff, so the touch, seems to be better or a minimum different.
Customers believe they can achieve a higher yarn price with that type of yarn. Now, we were not very successful over the last 20 years in air-jet spinning. We had many products, and we really were not successful. Sometimes we came too early to the market. Sometimes we were, technology-wise, not really perfect. So we had a lot of reservations. In fact, we made a reservation book at the ITMA in Milan, and within one day, it was fully booked. And we have now prototypes running. And we now are installing the zero series. So we go step by step because we want to make sure when we make the full sales release that the customer really gets what he or she was paying for. And so it's like in a horse race. So I'm riding on a horse, and the horse is really running full speed.
I have to tear it back a little bit to make sure it really works. We do not create, let's say, the next problem for us. We are very confident. We have different type of applications we are testing. I would say we are now at about 80% confidence level. Confidence level means 80% of different application ranges, we can say, yes, it works. There are maybe still 20% left. Over the next couple of weeks, we will also hopefully finalize this remaining 20%. There are a lot of customers waiting that we make the sales release. There are, on our bucket list of potential jobs, also air-jet orders we could get and then start to supply in the second half of the year. We have a good confidence level.
We just want to be sure that it really works. If this is the case, then I think there is quite some growth opportunities for us in many, many, many markets.
Mr. Bamert has another question. I will go back to the conference call. Vicky, may I ask you to open the line, please?
We have a follow-up question from Mr. Walter Bamert, Zürcher Kantonalbank. Please go ahead, sir.
Thank you very much. Some smaller questions I wanted to ask, which is, R&D will be at the same level, probably?
You mean in terms of success or in terms of cost?
Cost.
R&D will be also reduced in terms of cost because what we have introduced on the Next Level are so-called Product Power Hubs. We have learned that we had quite a lot of internal resource waste because we had, let's say, one place where we were producing. We had one place where we had the product management. And we had one place where we had the R&D locations. So on the Next Level, we have brought the three teams together at one place. So for example, ring spinning, we are producing in India. Now, R&D and product management of ring spinning is in India. Or we have certain rotor auto air-jet we do now in Czech Republic, which we have done some R&D in Ingolstadt before and product management we have done partially in Ingolstadt and here in Winterthur.
They just have seen that people have spent one-third of their time to find the right person somewhere on the other side of the world they have to talk to to align with each other. Now we have brought the teams together. That's point number one. Point number two, we also said, "Hey, we have to focus on the projects which really matter." We don't have to do everything at the same time. We have to do the right thing at the right time. We went through our R&D list and have selected according to certain priorities, which are the most important priorities for us along our strategic roadmap, automation, digitization, technology leadership. We have canceled some of the R&D projects where we saw there is not a very high confidence level that this will really result in a differentiation factor towards the competition.
We reduced the number of projects. We were aligning our resources at certain locations in these P roduct Power Hubs. Part of our structural cost reduction also went into this R&D cost bucket. R&D cost will be lower in the future years. Again, if we have extra efforts to be done because we need an extra push in one area, we will add external resources and not internal resources anymore. Also there, what we have now as a workforce internally, very, very good people, they will remain. If we need for certain applications, for certain technologies, additional resources, we will buy it from the market.
Perfect. Let's move on to CapEx. Can you give the CapEx guidance and go into details on the lease building, what effects that will cause in your CapEx and in your balance sheet?
Sure. Happy to take that question, Walter. As you know, we do not provide guidance on CapEx. However, we do not foresee to have any significant growth CapEx in 2024. So you may assume a CapEx level in the amount, more or less, of a depreciation also for this year. And with regards to lease liabilities, this is in relation to the move into the new campus. What will leave the balance sheet is assets held for sale, as was recorded last year still. And what comes in newly is a lease liability in the amount of around CHF 37 million. This is also explained in the annex of the annual report.
Formally, you will have additional CapEx of these CHF 37 million?
Not any material and not any CapEx, which is not included in the usual CapEx budget.
Okay. Then the smallest question to the end. The Egypt order, is that now completed, or do you expect more revenues to come?
So we are at around 85% sales level of this whole order. So 15% still left. I have visited the customer last month. Very happy with our performance. So we have now shipments in the first half of the year to be done in Damietta and the upper area of the Nile, Upper Egypt. This is the last part we will deliver. And the first parts we have delivered are now up and running. So they have a good performance already. And the beauty is when machines are starting to run, then they will start to need wear, tear, and spare parts. So I think in a couple of months, this should also help us to start to create more after-sales and components business in Egypt. So 15% are left from the big job.
Perfect. Thank you very much.
Good.
There are no more questions.
Okay. Then thank you so much for that part. So, ladies and gentlemen, our ambition is clear. Independent of where we are in the cycle of the industry, we want to always achieve positive results. And with this, I close the annual press conference. Thank you very much for the interest. Thank you very much for the questions. Thank you very much for the patience. And I wish you a good rest of the day and say goodbye.
Goodbye.
Thank you.