Ladies and gentlemen, welcome to the Media and Analyst Conference Call. I'm Moira, the conference call operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Norbert Klapper. Please go ahead, sir.
Thank you very much. Good morning, ladies and gentlemen, and welcome to this call. This morning, we will give you a first set of numbers and information concerning 2021. Let me start with the key messages on page two of the presentation. The headline says, "Order Intake of CHF 2.225 billion in the Financial Year 2021." This is an all-time high for Rieter. We will come to the underlying market development during the presentation. The second line says, "An Order Intake of CHF 552 million, roughly, in the fourth quarter." This is a run rate which still exceeds CHF 2 billion on an annual basis. Sales of approximately CHF 970 million in the financial year 2021.
This is better than expected. In October, we had set around 900, and I have to say that our teams did a fantastic job in mastering the supply chain challenges towards year end. The next line says, "Implementation of the acquisition of the three Saurer businesses on schedule." You might have noticed that we have already carved out two of the three businesses which we have acquired, and these two businesses have been transferred to Rieter. We see the first numbers of the two businesses in the 2021 numbers, and we will come to that point. The third business, the automatic winder business, will follow in the first half year, as planned. Last but not least, the EBIT margin of last year, 4.5%-5%, is what we expect.
This is in line with our cost and margin structure at sales of almost CHF 970 million. This is what could have been expected. I will move on to page three, Order Intake by Half Year. You see the numbers here. The bar chart is pretty impressive. The exceptionally high order intake is broadly supported globally. The orders came primarily from Turkey, from India, from Latin America, from Uzbekistan, from China, and from Pakistan. As we discussed earlier, there is two effects here, which we see in combination. There is a catch-up effect from the prior years, in particular, the two prior years. There's a regional shift in demand triggered by the cost development in China, energy, labor, raw material.
The costs which are important for the success of a spinning mill. As a consequence, customers invest outside China, and at the same time, Chinese customers invest in China, in new technology to stay competitive. Rieter has the right products and the global network which is required to satisfy this demand. On the following slide, on page four, we see a comparison in two boxes. We see the reflection of this development in Rieter's order intake. On the left-hand side, you see the country split, average over the last 10 years. On the right-hand side, you see the country split in 2021.
When you compare the two boxes, you see that China went from number one in the last 10 years to number four, and Pakistan replaced the United States, which were on number five over the last 10 years and are now not on the list anymore. If we considered Latin America as a country, it would have been number five on the 10-year average list and number three on the 2021 list. I can tell you that our order intake in China last year exceeded the 10-year average by far. We had a good year in China. However, in other countries, we had a lot more order intake compared to the past, and this is what changed the picture.
I will move on now to the slide number five, Order Intake by Business Group. You see here, of course, that the big catch-up effect and the regional shift of demand hits our Machines and Systems business. We see the huge growth rate here, but also a very, very good development in Components and After Sales, which is important for Rieter's profitability, triggered by the increased demand for spare parts and wear and tear parts of the spinning mills, which have a very high capacity load at the moment. We are happy with this development, obviously. We can say that by the end of the year, we had an order backlog of CHF 1.8 billion on our books, which is more than three times of what we had one year ago.
Moving on to slide number six, Sales by Business Group. We see also the development that I just went through, we see it also here, not to the same extent as in the order intake, obviously. Machines & Systems achieved sales of CHF 590 million, twice of what we had a year ago. The big challenge here was, as I said, the supply chain challenges, yeah. The bottlenecks in logistics and the material shortages. We were able to generate more sales than expected. As I said, the teams did a very good job in mastering all these challenges. In Components, we also moved up significantly in terms of sales, and the same is true for After Sales.
A very good development in total. On slide number seven, sales development by region. The sales development by region also reflects what we said in terms of orders order intake development by country. We see the same rationale here. The investments outside China and the investments in China. Now, same reason, same underlying logic. On the next slide, page eight, I would like to address an important topic for 2022, margin protection. Backlog margins are healthy. We have been able to largely offset cost increases so far. We started early with price increases. You might remember our discussion. This was not very popular at the time, but it was a good decision, and it was in line with our responsibility as the market leader.
Going forward, there is a risk of additional cost increases beyond what we have seen so far. Let me share our perspective on this risk with you. When we look at our Components and After Sales business, we don't see a big risk here. The backlog of the two business groups is for a couple of months. It has a value of a couple of months of sales, yeah. If costs go up, we can follow by price increases to protect our margins. In Machines & Systems, the backlog goes into 2023 and even 2024. So it's more challenging to protect margins against additional cost increases. Here's what we're gonna do. We have already increased prices by more than 10%, as I told you.
On top, we are looking into additional price increases targeting at the single machine business, which is not on the books yet, yeah. In this business group, there is a single machine business every year. Here we still have a chance to increase prices in case costs go up further. We also are looking at renegotiations, obviously, yeah. If we see additional price increases this year, we will go back to our customers, and we will go back to our suppliers. This includes a price escalation clause. This is not common in our industry, but we have started to implement it. There is, of course, efficiency improvements that we are looking at. I'd like to give you an example.
You know that we have a big contract in Egypt, and this Egypt contract represents 1,000 containers to be shipped to Egypt. Our teams are working on whether we can make these shipments by not needing 1,000 containers, but 900 instead. Without taking the risk of damaging our machines, of course. You might say, "Hey, containers is not a big deal." Well, it is a bigger of a deal than you would think. The transportation costs in Machines and Systems normally are between 3%-4% of sales. Our projection for 2022 is between 5%-6%. It is significant. To work on efficiency improvements like this is very, very important. In summary, we are aware of the risk, and we are working on mitigating it.
Let me move on to page nine, the implementation of the acquisition of the three Saurer businesses. I told you already, Accotex and Temco are with Rieter now. We have started to consolidate the numbers, and we have also reported the first numbers for December. The two businesses in combination contributed CHF 27 million to the order backlog of CHF 1.8 billion that I was talking about. On page 10, we see the third business, the Autoconer business, the automatic winder business. Here we are, according to schedule, working on the carve-out. You know that this is an important acquisition for us because it completes our ring and compact spinning system. We expect to complete the transaction as anticipated in the first half of this year.
Accordingly, there are no numbers included in our 2021 numbers from this business. All right. We are at the end of the presentation. Please let us have your questions now.
First question is from Christian Arnold from Stifel. Please go ahead, sir.
Yes. Good morning, gentlemen. Few questions from my side. First, you already mentioned that your team has done a great job in terms of Q4 performance. Still, I wonder, I mean, you were guiding for around CHF 900 million, you came up with CHF 970 million sales. I mean, was it only that your internal processes were great, or have you also seen some other impact from the market somewhere that some markets developed much better than what you have assumed? Second question would be on Egypt. You already mentioned it. I think three months ago, we were talking about that you expect this order to become live 50% in 2022 and 50% in 2023. Can you give us here an update?
Linked to that, as this order was acquired now quite some time ago, what does it mean in terms of profitability and having much higher material costs now than at that time when you acquired the order? What does it mean to the profitability of that order? Maybe yeah, I start with just two questions.
Thank you very much, Christian. Well, Q4 performance in terms of sales, the markets are of course urgently waiting for machines to be shipped, yeah. Our customers are making a lot of money and if possible, they would like to get every part, every component, every machine right now, yeah. That is the market situation. It has not changed, yeah. What made us cautious about year-end when we gave you our update in October were the material supplies bottlenecks and also the logistics bottlenecks, yeah. Of course, it is about working together very closely with suppliers. It's about setting the right priorities. It's about organizing shipments, even if it's difficult. This is what our teams have achieved, yeah. The market sentiment is unchanged.
If you have a machine, please send it immediately, yeah. If I have a part, please can I have it tomorrow? The bottlenecks that we have in the supply chain, that is what needs to be mastered in order to ship the material and the machines as we did it in December. In Egypt, still we still anticipate roughly 50% of the order to be shipped this year. The profitability of the order, based in the light of the material cost increases, well, we have, of course, ordered material early enough, yeah, to protect the margin of this contract.
What I can say in addition, that for those items which we have not ordered yet as the containers, for example, we are working along the lines that I just explained, yeah. I'm not concerned about a major margin deterioration in this contract.
Okay, very good. Maybe, I don't know, kind of a philosophic question, but, I mean, you once had these medium-term targets of CHF 1.3 billion sales, and on the back of that, some 10% EBIT margin. I mean, thinking about your backlog, about your order intake, market, and also ourselves are expecting a much higher sales figure than the CHF 1.3 billion. So can you share your view about what is possible in terms of margin? The 10%, I don't know, on the back of this post-inflation environment may be a little bit high, but, what is possible in 2022?
Well, we will give you an outlook in March, Christian, and I'm tempted to say that the sky is the limit, but this is not true, yeah? We will give you an outlook in March, and then we can discuss this, huh.
Okay. Thank you very much.
Thank you.
The next question is from Sebastian Vogel from UBS. Please go ahead.
Hello, can you hear me?
Yes, we can.
Perfect. I got a couple of questions. The first one is related to Turkey. How is that business doing in light of what is going on at the moment in Turkey? Anything in that regard would be great. The second one would be on Saurer, if you have seen any positive or negative surprises on the integration of that business so far. What are the sort of the hurdles that you see at Winder that it's taking so much longer than at the Components business? Last but not least, with regard to the calculation, you often come across about the CHF 800 million revenues per annum or the CHF 400 million revenues per half year on a break even.
If I got this correctly, you have this CHF 570 million, minus the CHF 400 million gives you a CHF 170 million, multiplied by 30% gives you something like CHF 50 million, plus the CHF 9 million of the first half gives me something like CHF 60 million, which would mean a margin of 6.2%. Again, if I calculate that correctly. Meaning that your guidance seems to be discounting something potentially or is it just because of the mix on the machine side? Can you shed a little bit more light on that one, please?
First question, Turkey. We all saw what happened yesterday, huh? We don't think that it will have an impact on the business of our customers and, as a consequence, on our business. As long as textile consumption in Western Europe and the U.S. stay at the level where it is at the moment, no COVID impact or stuff like this, our Turkish customers will be busy, and this is the reason why they will move on with their investments, huh? They take a major part of the business which is gonna leave China. This is obvious from the numbers that we see, and this will not stop. So we don't think it will have an impact. Saurer, positive, negative surprises.
I mean, it is, it was to be expected that the carve-out of the automatic winder business would take longer. We knew this when we started the project because Accotex and Temco are two units which are embedded in the Saurer system, but they are units which can be carved out relatively easily. This is not the case for the automatic winder business. This is deeply integrated into the business system of Saurer, and it is demanding to carve it out from a couple of perspectives. We knew it would take longer, and the plan was done that way, and we are executing the plan. The profitability, yeah, I guess we would
You know, math is understandable, but don't forget that we had one-off cost last year. We made a major acquisition, and this has to be considered in our projections.
Got it. Many thanks.
Thank you.
We have a follow-up question from Christian Arnold from Stifel. Please go ahead.
Yes. On FX. I mean, you hardly have FX impact looking at your sales figures. You are billing, I think, in hard currencies, meaning U.S. dollar, euro, Swiss franc. Can you give us here the split up? Thinking now about the Swiss franc strength also against euro, would we have to expect some impact in 2022? Thank you.
Yeah, maybe I take this question. You want to know how much is the invoice in Swiss francs? This is about two-thirds. This is a rough number, but about two-thirds.
The rest?
Yeah, it's mixed, of course. Everything that is sold in China, within China is in CNY. Then it's differently within India, very often in rupees, of course, and then in U.S. dollars and euros.
Okay. There won't be a significant FX impact in 2022 either, huh?
It depends what the currency goes.
The next question is from Edouard Riva from ZKB. Please go ahead.
Good morning. Thank you for taking my question. Just very quick, could you give a very quick update? Do you see any improvement on the supply chain side? When would you expect a return to normality on that side? Thank you.
That is a very good question. At the moment, I have to say I don't see a relief. Yeah. I see that we are still working a lot on orchestrating our suppliers, on finding different solutions, on making sure that we can ship and supply and install. I guess it will take some time before we come back to normal. It will certainly go into the first half year this year and maybe even longer, yeah. I mean, it's a matter of managing it, yeah. It's not nice, and it's a lot of work, and it costs some extra money. Of course it is a challenge we have to master.
By what you saw in the fourth quarter in terms of performance, I guess we can say that our teams are on top of it, despite all the trouble that it causes.
Understand. Thank you very much.
We have a question from Stefan Frischknecht from Schroders. Please go ahead.
Yes, good morning. I have two questions. Firstly, I was wondering if you could give us some more flavor on the development of orders and sales in China. You were mentioning that the Chinese clients are continuing to invest. Do you see that sort of level of activity that you had in 2021 to continue into 2022? Secondly, I was wondering in terms of Turkey, can we assume that the significant increase in business that you have seen is from existing clients, or do you see actually new clients that have contributed to the volume increase? Thank you.
Yes. To assess the situation in China for 2022 is too early in January. We have to wait until the Chinese New Year is over. Our Chinese customers will come forward with their plans for the year, and then we can assess what this will mean to us. Basically, I guess independently from this we can say that the Chinese market is demanding advanced technology and will be demanding advanced technology just to stay competitive. I don't think that this is gonna change, yeah. The situation in Turkey comes in both flavors, yeah. We have our existing clients who invest in capacity extensions significantly, and there is also new players which are investing, yeah.
This is of course a very attractive mix to us because all of them buy systems, yeah. They buy ring and compact spinning mills and this is where Rieter is particularly strong, and this is what we see in the order intake
Perfect. If I may sneak in one more question about inflation and passing it on in terms of pricing. Could you give us some more detail on how big a proportion of your order book you've been able to match the input price increases with sales increases in a sense that when you receive the orders, as you explained with Egypt, you've already been able to secure the pricing levels for the input costs. On maybe just in 2021, if I understand correctly, you've implemented a 10% price increase. Has this 10% price increase just covered the inflation in input costs? Or are there differences?
Have you been able to pass on more or less than the input cost, inflation? Thank you.
I mean, what I can say about this is we have CHF 1.8 billion of order backlog on our books, and the margin in this order backlog is healthy. Yeah. Related to this backlog, our margins are good, and we have been able to mitigate all the issues that we experienced last year in terms of cost increases. The risk that I was referring to is additional price increases, cost increases that go beyond what we have seen so far. This is the risk we have to mitigate, and I told you what we intend to do.
We now have a follow-up question from Christian Arnold from Stifel. Please go ahead.
Yes. Looking into my notes, last March, you were saying that 95% of the spinning mills you are tracking are busy with a capacity utilization of 83%. Can you give us an update here, how this picture looks like now?
Yes. The situation is unchanged. The mills are busy, and the capacity utilization is high. We are in the same order of magnitude in terms of capacity utilization.
Thank you.
There are no more questions at this time.
Good. All right. Thank you very much for bearing with us this morning. We are very happy about the development, obviously, and we thank you very much for your questions and for the discussion. We will see or talk to you soon when we discuss the final results for 2021 in March. Thank you so much. Thank you. Have a good day.
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.