Ladies and gentlemen, welcome to the Media and Analyst Conference Call. I am Sandra, 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, Sandra. Good morning, ladies and gentlemen, and welcome to today's call, in which we will update you on a very important step for Rieter. We will talk about the acquisition of three businesses from Saurer. You are familiar with the fact that Saurer has been a strong competitor of Rieter for many years. In June, two German Saurer companies filed for insolvency, and Rieter and Saurer have been able to structure a transaction, the transaction which we published this morning. As a result, insolvency proceedings in Germany will be stopped, and three businesses will be transferred from Saurer to Rieter. I guess you have done the numbers already. By this acquisition, we expect Rieter to grow by more than 25% in sales and profits. In addition, Rieter will close the gap in the product portfolio. This creates an opportunity for further profitable growth.
Let me come to the key messages. Investment and completion of Rieter's ring and compact spinning system, Schlafhorst automatic winder. This is the machine we are talking about. I will explain to you during the course of the presentation what this machine does and why it is so important to Rieter. In addition to this machine, we will invest in two attractive components businesses, Accotex and Temco. I have a slide on these two businesses as well. The combined turnover of the three businesses in 2020, the year of the pandemic, Saurer booked EUR 142 million. In 2019, which was the trough of the investment cycle, as you might remember, Saurer booked EUR 235 million. In 2018, the last year, which we could call a normal year in our business from a market perspective, Saurer booked EUR 260 million in these three businesses.
The purchase price on a cash and debt-free basis is EUR 300 million. We financed the purchase price from cash and existing credit lines. We expect the transaction to be closed together with Saurer in August. The full implementation will last six to nine months, because what will follow to the closing is a carve-out of the businesses from the two companies where they are today. We also have announced this morning a change in the board of directors. Let me come to the strategic rationale of the first portion of this acquisition, the completion of the ring and compact systems of Rieter.
What you have on this slide here is the ring and compact spinning process, which starts with a blow room. It goes via the card and the draw frame, the comber in many cases, the roving frame and the end spinning machine, ring and compact end spinning machine. The last step in this process is the automatic winder. The automatic winder is a process step which Rieter did not have so far. It is important to understand that the ring and compact spinning segment is the biggest segment in the market, in our market. In 2018, it represented roughly 56% of the end spinning market, the ring and compact spinning. Rieter is strong in this market, as you know. So far, we have not had the complete system.
We have the complete system in rotor spinning. We have it also in air jet spinning, but not in ring and compact spinning. This is why this is so important that we have been able to acquire this business now. What does this machine do? It takes 50 gram portions of yarn from the ring and compact spinning machine. This is the end product of the ring and compact spinning machine. What it does to the 50 gram portions, which are on so-called cops. This is how the spinners call this. The 50 gram portions have to be unwinded. What happens then is to cut out the yarn imperfections. This is very important on this machine. Then the machine connects the yarn ends and rewinds the bobbins, rewinds the yarn on bobbins of four to five kilos. This is what this machine does.
This is a very important machine in the process because it determines the quality of the end product, which is the end result of the spinning process. Of course, as you might imagine, this machine is a source of information on issues in the whole process chain, quality issues, inefficiencies, because in this final process step, everything pops up. This is why the machine is so important. It is a big market segment as well. Saurer reported sales in 2018 in winding of roughly CHF 193 million, which represented a market share of 30%. So far, Rieter had no access to this market segment. There is also an additional sales potential in connection with Rieter systems here, because the market share of Schlafhorst winders on Rieter systems is very small. It is our objective to increase the market share of Schlafhorst winders on Rieter systems.
The system integration is also an important point here. As I said, this machine, the winding machine, is a source of information which can help to improve the process from the beginning, through all the process steps, until the very end. You know that we have the digital platform ESSENTIAL ready, and the integration of the winder with the rest of the process via ESSENTIAL will be key and will be a source of additional sales and profits. Let me come to the strategic rationale of the two attractive components businesses that we will also acquire. Accotex. Accotex are cots and aprons, and we have a little photo here where you see a orange frame around the cots and the aprons on a ring spinning machine. The cot is the one which is at the lower part of the picture, and the apron is above it.
Both of them are parts which are made from elastomers, and they are very important for the ring spinning process. Accotex is a premium brand in this segment, there is an attractive OEM and also, obviously, as it's a component wear and tear business which comes along with it. Sales 2018 were around EUR 33 million. It is a very good fit to our components business. We don't have that business today, only very small activities in the cots and aprons segment. This helps us to improve our market position in the end spinning components business significantly. We have a second components business here, Temco. Temco is a company which works in the filament business. You know that we have had our first attempt to go into this market by the acquisition of SSM. They are active in the filament business as well.
Now we add to this a second component business, which is very attractive. They do bearing solutions and texturing components for filament machines. Also here, there is an attractive OEM and an attractive wear and tear business. Sales 2018, roughly EUR 35 million. When we come from the strategic rationale to the financials on the next slide, you see the financials 2020, 2019 and 2018. You see the sales numbers that we have been talking about already. You see EBITDA, order intake and EBIT. What we can also see here is, of course, the year 2019, where we had the trough of the cycle, and 2020, where we had the pandemic. That is why we said 2018 is the point of reference here. I guess the numbers speak for themselves.
Let's come to the next slide, page number six, the key financial considerations. Very straightforward. Purchase price, EUR 300 million, cash and debt-free. EBITDA multiple based on what we saw on the previous slide, based on 2018, at roughly nine. The purchase price financed from cash and available credit lines. On the next slide, page seven, you see the structure of the transaction, which needs to be explained. The purpose of the transaction was to stop the insolvencies in Germany and then carve out the businesses that Rieter would acquire. In order to stop the insolvencies, the mother company of the two insolvent companies receives the money that Rieter will pay as a purchase price. The company, which is the mother company, the parent company of the two German units, is Saurer Netherlands.
Rieter acquires 75% of the shares of Saurer Netherlands against the EUR 300 million, which is the purchase price. Saurer Netherlands, as you see in this slide, is the parent company of the two German units. The next step is, and this is going on while we speak, the insolvency proceedings of the two German units, Spin and Tech, will be terminated. This has been agreed with all parties involved, so this is going on at the moment. What comes next is the carve-out of the Schlafhorst automatic winder from Saurer Spinning Solutions and Accotex and Temco from Saurer Technologies. Once this has been completed, Rieter will give back the 57% in Saurer Netherlands to Saurer. This is how the whole thing works. What we will do on the way is to agree on a supply agreement for automatic winders from Rieter to Saurer.
This is part of the concept. In addition to the transaction, we announced today a change in the board of directors. The board of directors on page eight. We put this together. The board of directors intends to convene an extraordinary general meeting at which its members, Luc Tack and Stefaan Haspeslagh, are to be dismissed. The reason is, Luc Tack and Stefaan Haspeslagh used confidential information on the acquisition of the Saurer businesses to compete with Rieter through their own offer. In addition, Rieter has filed a criminal complaint against Luc Tack and Stefaan Haspeslagh in this context. So far, the presentation. We are open for questions now.
The first question comes from Christian Arnold from Stifel. Please go ahead, sir.
Yes. Good morning, gentlemen. Two, three questions from my side. First, you were saying that your machines are running very seldom with Saurer automatic winder. With which machines or automatic winder, have they been connected in the past, would be my 1st question. The second question is, to take over the automatic winder of Saurer, that is very strategic for you, as I understand. The other two components businesses, they are very profitable businesses, but it looks to me like more nice to have acquisitions. Did you have to take over these components, and did you want to take over these components? Yeah, maybe a little bit, your thoughts on that one. The 3rd is more of a clarification question. In the 1st step, you were saying that you are acquiring 57% of Saurer Netherlands.
At the end of the process, I understood it correctly, you will own 100% of these businesses, right? That would be my questions. Thank you.
Thank you very much, Christian. The machine, which in many cases stands behind the Rieter ring spinning machines, is the Murata automatic winder. The market share of Schlafhorst winders behind Rieter machines is not very big. The highest market share has Murata today. The second question, well, I have to say that I'm really happy that we have been able to agree with Saurer on the transfer of the two components businesses. Components businesses have been our target for many, many years from an acquisition point of view. We talked about it a couple of times. I'm very happy that they will come to Rieter now and they are a perfect match to our strategy. Accotex, for the ring and compact spinning system. In addition to other spinning systems, they also provide cots and aprons, for example, for air jet machines.
This is really a core component business that Rieter didn't have. The second, Temco, is very, very good because it matches with the ambition to step into the filament business, via key components. This has also been on the agenda for quite some time, the two components businesses are a perfect match. I'm very happy that we have been able to agree with Saurer on this. The clarification that you have been asking for, yes, this is how it is going to work. 57% in Saurer Netherlands now, then the carve-out, and the carved-out companies, the businesses, will be owned 100% by Rieter. At the end of the transaction, Rieter will give back the 57% of Saurer Netherlands to Saurer.
That at the end of the transaction, Saurer Netherlands will be under the control of Saurer at 100%. The businesses, which will be below Saurer Netherlands, will be the rotor business, will be the air jet business that they have started to develop. It will be the ring spinning systems, their components business called Texparts, and also Volkmann, which is the twisting machines. That will be under Saurer Netherlands. Under Rieter, 100%, will be the automatic winder, Accotex and Temco.
Okay. Thank you. Maybe a follow-up question. This whole difficult situation of Saurer, did you feel it already in your order intakes? The whole financial situation or difficulties, they popped up in June. Did you feel anything from the market already in July or August, so that you won more orders or businesses, which maybe you wouldn't have won, when this situation would not have occurred?
That is very hard to assess. What we know is that Saurer also enjoys a nice order intake. As everybody in the industry at the moment, Saurer also enjoys a nice order intake. We are not sure whether we can say that customers placed orders with Rieter because they were afraid of the situation or concerned about the situation in Saurer. That is hard to assess, in particular, after only eight weeks. Where the normal negotiation cycle in a significant machine and equipment order would be a lot longer than eight weeks.
Thank you very much.
The next question comes from Charlie Fehrenbach from AWP. Please go ahead, sir.
Good morning, gentlemen. I have two financial questions. The sales of the acquired businesses, will the sales be in the current year closer to this CHF 142 million of 2020 or closer to the CHF 235 million of 2019? You may could give a new guidance for the whole group, then reiterate that, I guess more than CHF 900 million for the whole year. Maybe you can add to this. The second part of this is the profitability of the acquired businesses compared to Rieter. They made loss as you did in the last year. Where do you think will this go this year and maybe the next year? Then I have two questions concerning the board members. Are these two concerned board members suspended from the ongoing board meetings at the moment? Luc Tack holds more than 10% of Rieter.
Don't you expect any problems to recall him out of the board? Concerning this, you may know the position of Peter Spuhler in this question. Thank you.
Okay. You want to talk about the financials?
Yeah. I can talk about numbers. We don't give the guidance in 2021, but you can look at the historical numbers, and you know our historical numbers. They went somehow through the same cycle as we did, and then you can take the same assumptions. Fundamentally, there's a good market. Norbert mentioned this before. We are in a upswing at the moment in the market, and this will also be reflected in the numbers of Saurer this year. Profitability of the business, it's the same answer. You can see it's a similar development as we had. We had a very bad 2020. These two businesses also were negative, loss-making. The 2019 was already the cycle down, and 2018 was more or less the last normal year. Based on this, you can make the assumptions.
Okay.
Regarding the board members, I can say that the way it works in Switzerland is the two board members in question have requested to be suspended from their duties for the time of the transaction. Yeah. That has happened. The transaction is over now. Now they are back on the board. Now the extraordinary general assembly will take place based on what we communicated this morning. I cannot speculate on what is going to happen regarding the share which Picanol has at Rieter. I don't know where we will be with this and what is going to happen. This would be pure speculation.
Okay. Thank you very much.
The next question comes from Edouard Riva from ZKB. Please go ahead, sir.
Yes, good morning. Thank you very much. Just have a small clarification question concerning the Winder market. You mentioned that the Schlafhorst system represent approximately 30%, is this correct? That Murata is likely the major player, and how should we split the market, 30% o r should we think it 30% on the Schlafhorst system, 50% for Murata, and 20% Savio? Is it something like this?
Well, I have learned from Saurer that they look at the market the following way. Market shares, Saurer and Savio, 30% each, market share Murata 40%.
Understood. Thank you very much.
The next question comes from René Zeyer from Freelance. Please go ahead, sir.
Thank you. Welcome, gentlemen. I have four questions concerning the board members. The first one is, what does Rieter think of the presumption of innocence of complaints towards, or let's say, with this strong content? Secondly, are there any proofs available for these complaints, and if yes, would they be public? Third question, you said there is already filed a criminal complaint, so that it happened already or will it happen? Last question is, Mr. Haspeslagh was introduced to the board of Rieter just in spring of this year. In the knowledge of today, wouldn't you think that was a little bit shortsighted to appoint him as a member of the board? Thank you.
Well, I guess what Rieter did this morning is to file the criminal complaint. Yeah. Swiss prosecution will take that up and come to a conclusion on whether there is a crime, a criminal activity here or not. Yeah. This is the process, and this is what we have started. We have, of course, told the Swiss prosecution what our position is and what Rieter's position is, and they will follow up on it and do what is required here. That is the way it works. Your fourth question, the nomination of Stefaan Haspeslagh, yes, at that time, there was no indication that we would end up in such a situation. I guess we can say that there was no reason to think differently about it at that time.
If I may ask a follow-up question, just repeating my first question. Presumption of innocence is a basic rule of all criminal procedures. I'm missing a little bit this declaration in your announcement of this morning.
Well, I guess that is not up to us. Rieter has determined the facts and put together the facts according to the way we understand them, and we have seen them happening, and that is what we proceeded to the Swiss prosecutor. Now the process has started. It is not up to us to decide on innocence, yes or no. This is a juridical thing which is going on now.
Okay, last follow-up question again. The proofs you surely have, will they be available in public or not?
No, they will go there along with the filing, which we did today, and we will not publish them.
Thank you.
The next question comes from Andreas Meier from Finanz und Wirtschaft. Please go ahead, sir.
Good morning, gentlemen. Yes, again, a question about Mr. Tack. How did you learn that he or his surrounding made an offer for Schlafhorst? Did you have been informed through Saurer? I think he did it a bit in a hidden way.
I'm not supposed to disclose any details of what happened. You saw the way we look at things, Rieter looks at things from our announcement, and this is all I can say about it today.
Okay. Thank you.
The next question comes from Rolf Renders from Helvea. Please go ahead, sir.
Yes, good morning, gentlemen. Thanks for taking my questions. Can you elaborate a bit more on potential synergies with these acquisitions? Just to understand better what it helps you, with clients or with other things.
Well, Rolf, thank you very much, but I guess I expanded on that. There is a couple of synergies on the market side which are quite significant. What I don't expect to a large extent is cost synergies. I guess that is not what we're looking at here. The market synergies in the winding business are that we have access to a market segment which was not available to us so far. We also discussed about the potential it might have with Rieter systems and also the potential it will have when it comes to differentiation of the Rieter system compared to others. That is the three synergies we see in the ring and compact spinning systems. In the components businesses, there is the two businesses that we have to look at.
There is also a synergy which we expect from Accotex because the business today, the market share of Accotex on our machines can still be improved, I guess. Temco is a company which opens the filament market to a higher extent to Rieter. This also brings along opportunities which we don't have today.
Okay. Thank you for that. Yes, I of course noted that you explained it already a bit, but I'm looking for the reference number now. It's CHF 260 million of sales in 2018, let's say. Before there was a trough in the market and before there was the pandemic impact. With the synergies you have, do I understand right that you expect this number to be larger or even significantly larger in the future?
We will do our homework on that, Rolf. As soon as we have something well-based and well-thought through to tell, we will certainly do that. For the time being, I guess the synergies that I have explained are what we understand, and it has to be seen in the light of the market situation as well. We will not give you a number today.
Right. Okay. No, thanks for that. That will be great to learn then when you have done more work on it. You also mentioned that it enables you to monitor the quality at the end of the whole process much better. Do I understand right that this gives you also then a better edge than before for the whole service and maintenance of the installations from the clients?
The biggest benefit here of this is to control the process in a better way and to take inefficiencies out. That might also have an impact on service and on spare parts and so forth. The big thing here is to take sources of quality issues out and to improve the efficiency of the whole process.
Yeah. All right. Great. Is there a run rate of services of these businesses? Is it like, let's say of the 100% of sales is normally 20% services or so, or is that difficult to share?
You will see this in our service numbers once we have consolidated the businesses.
Okay. Great. All right. Thank you. No more questions.
Thank you, Rolf. Thank you.
The next question comes from Sebastian Vogel from UBS. Please go ahead, sir.
Hello, good morning. Just one on the integration side. Can you quantify the integration cost and how much of integration is actually possible for these businesses?
We have not determined the integration cost because the carve-outs have not started yet. We expect the integration cost to be in the single million digit range.
That over some time or just one, two years? Just a sort of rough ballpark there, if possible.
It will take this year and next year, most probably, because a couple of things need to be done. The carve-outs. Once the carve-outs have been made, the integration will start. Of course, you know that there is IT things to that. Yeah. This will take some time. I would expect the majority of the integration cost to kick in next year.
Understood. One small question regarding the Winder business. I was calculating the suggested EBIT margin in the 2019/2018. It is higher than your machine and systems business. Is that mismatch related to the service business that is included in those numbers?
Say it again. It is higher than what?
Is it just because that in there is like the combined equipment and service business?
Yeah. That's certainly part of it. As I said, we will sort that out and you will see it in our numbers when we have split up.
Understood. Many thanks.
Thank you.
The next question comes from Alessandro Foletti from Octavian. Please go ahead, sir.
Yes, good morning. Thank you for taking my questions. First of all, congratulations for the purchase of the Winder. I think it's a big strategic step for you guys. Unfortunately, I joined the conference a little bit late, my first question maybe has already been asked. In that case, just give me a summary, please. I always thought that this business was super core also for Saurer. What is the reason they're selling?
You'd have to ask Saurer, yeah? What I said already is that we have been sitting together with Saurer and try to find a way how both companies could benefit from solving the problem that Saurer had, and that is what we try to do. We will continue to supply winders to Saurer. That has been agreed, and we will set up a corresponding contract during the carve-out.
Right. You sort of have the insurance that they don't have a Chinese machine already in construction somewhere in Wuxi or Suzhou or Beijing or somewhere?
Well, what I can say is that we acquired their Winder business.
Right. Okay. The second question is, this business is a full German business, or does it have also a Chinese production site already?
The production of the automatic winder is concentrated in the plant in Übach-Palenberg, close to Aachen.
All right. Okay. Thank you. Congratulations again.
Thank you. Thank you, Alessandro.
The next question comes from Christian Arnold from Stifel. Please go ahead, sir.
Yes, thank you for having this follow-up question. Closing expected August 21, full implementation six to nine months. In terms of consolidation, it will be consolidated for four months, right? For 2021 and then 12 months for next year and then the future. I wonder if you could already give us some indication about additional amortizations or purchase price allocation. Do you have here any thoughts already?
Christian is trying to fill his spreadsheet.
Yeah, kind of. Yes.
Yes. First of all, yes, the consolidation is for 4.5 months in this year and then full consolidation next year for these businesses. Regarding purchase price allocation, you might know that this is a very tedious process to really elaborate on the numbers and to split it up between goodwill and intangible assets. I cannot give you a detailed number at the moment. Just make a basic assumption. Maybe when you look at the SSM transaction, you see how the split normally is, and this will be in the same range.
Can you remind me on the split?
Sorry?
Will you remind me on the split?
You want to hear a number?
Yeah.
I just take 50/50.
Okay. Okay. Thank you.
Pleasure.
The next question comes from Stijn Wuyts from Belgium Business TV. Please go ahead, sir.
Thanks for taking my questions. I have three questions regarding the issue with the board members. First question is, at what moment or on what occasion did you discover this possible misuse of internal information? The second question is: Do you seek damages from these directors, and if so, to what amount? The third question is: Was there a possible conflict of interest by these board members discussed before their appointment? Was it discussed in the board or in the company? Thanks.
Thank you very much for the questions, but I'm not supposed to answer these three questions. I cannot tell you at what occasion this came up. I cannot tell you about the potential damages, and I cannot tell you about a potential discussion of the conflict of interest. These are details to what has happened, which we will not disclose.
Okay. Even the damages? That seems to me some financial information also for the company.
Even the damages.
Okay. That's a pity, but thanks.
Thank you.
Nevertheless.
Thank you.
Bye.
As a reminder, if you wish to register for a question, please press star and one. The next question comes from Giorgio Müller from NZZ. Please go ahead, sir.
Yes. Good morning, sir. I just was wondering if you have a timeframe for the extraordinary general meeting which you would like to convene?
We don't have it yet. We are in the process of organizing it, and as soon as we have the timing, we will, of course, as we are obliged, publish it.
That depends on the ongoing criminal investigation? What will come out of that? Will you wait till then or i s it something which are not related?
I don't think so, Giorgio, no.
No. Okay.
These things run independently from each other.
Okay. It will be this year, or you won't tell that?
That is what I would expect. Yes.
This year. Okay. Thank you.
The next question comes from Marc Webb from Quaero. Please go ahead, sir.
Yes. Good morning. I just wanted to have a little bit more of background on what's happening here in Saurer, just to understand why they're selling these businesses. Obviously, you could suggest they call Saurer, can you help us understand a little bit why these businesses don't fit in with Saurer? Secondly, what other activities in Saurer were up for sale, considering the insolvency process in Germany and the Netherlands? Why did you not buy them, and what is the logic? Thank you.
Yeah. The reason why Saurer was open to selling the businesses, I guess, was the insolvency of the two German companies. That was the starting point of the discussions, and I've tried to explain that by this transaction, there will be sufficient financial means available to stop the insolvencies. That is what is going to happen, and that is what drove the transaction. Other activities up for sale, no, not to my knowledge. We have to understand that the insolvency proceedings in Germany had not reached a level at which the administrator was asking for companies to hand in offers for the assets. That has not happened. The process had started, but it was not completed. This is how we did it together with Saurer.
We discussed with the administrators and found a solution that stops insolvency proceedings now before the assets of the companies are up for sale.
Just to understand, this suggests that the mother company in China did not have the means itself to stop the insolvency.
I can only speculate on this, but I'd say the transaction was important for that. That is what I think.
Just to follow on from an earlier question about whether this is having any impact on your order bookings or your negotiation with clients who might be considering either your machines or Saurer machines? Do you expect this news this morning to have an impact over the coming months?
This is very hard to say. I guess what the market will understand is that Saurer will continue to do business, that Saurer has the financial stability now that they have been lacking for the last eight weeks, and I guess that will be an important signal to the market.
Understood. Thank you very much.
Gentlemen, there are no more questions so far.
All right. Good. Thank you very much for bearing with us this morning. Thank you very much for your questions and the discussion. We are looking forward to talking to you again in October at the trading update. Thanks a lot. Thank you.