Good morning, ladies and gentlemen. Welcome to Rieter's Results Press Conference. Thank you all for joining us today. My name is Relindis Wieser. I'm the head of Group Communication and Marketing. Thomas Oetterli, our CEO, will take over the first part of the presentation. He will then hand over to our CFO, Oliver Streuli, for the financials. The presentation will be followed by a Q&A session. Webcast viewers may submit their questions in writing. As always, the speeches are recorded. Let's start with the first presentation. Thomas, the stage is yours.
Thank you, Relindis. Good morning, bonjour, grüezi miteinander, buonasera, buongiorno. Dear ladies and gentlemen, also a warm welcome from my side. 2024 was another tough year for the textile industry. In challenging times like these, it is even more important to stay focused and deliver excellence in execution. If you do this and have the right actions in place, you will outperform competition. Thanks to the enormous efforts of our teams all over the world, Rieter achieved a solid financial performance, increased its market position, and drove technology leadership. I'm very proud of the Rieter team worldwide and thank all my colleagues. Let's look at the agenda. We will briefly look at the key messages, review the market, and take a closer look at our strategy execution. I will then hand over to Oliver for a deep dive into the financials.
Let's start with the key messages on slide number four. I will give a high-level overview of order intake, sales, and EBIT. Oliver will then walk you through the details on sales, EBIT, free cash flow, and net profit. Let me start with the green boxes, order intake. One of the highlights in 2024 was that order intake increased remarkably by 34%, reaching CHF 725.5 million. The final quarter of 2024 was the fourth consecutive quarter of a year-on-year growth. Sales. As expected, we closed the financial year 2024 with lower sales of CHF 859.1 million and thus remained 39% below the prior year. Finally, EBIT. As a result of the disciplined execution of our next-level performance program, we were able to achieve a solid operating result, or EBIT, of CHF 28 million, or 3.3% as a percentage of sales.
On the blue boxes, since January 2025, we have strengthened our leadership team with two new hires. I will introduce them shortly. The market environment is persistently difficult, but we are seeing initial signs of a recovery in some key markets. I will come back to this in a few minutes. What is particularly noteworthy is that we were able to improve our competitive position in a weak market. This was further highlighted by the increased hit rate in our machines and system business. Finally, let's turn to the gray boxes. We are hitting our stride in sustainability, which is firmly anchored in our corporate strategy. In 2024, we were able to increase the share in renewable energy to 28.6%. Females in management. This was one of my biggest priorities when I first joined. We were able to increase the share of women in management to 15.3%.
Yes, this is still short of our 20% target in 2025, but we are beating now industry average. Finally, occupational accidents. Our goal here at Rieter is zero harm. We have been able to improve our occupational accidents per million hours worked to 3.3. This is definitely better than last year, but still too high. We now move to our leadership team on slide number five. Let me briefly introduce our new hires. Alexander heads up our after-sales division. He has a broad global experience in sales management and the after-sales business from major industrial companies and brings a fresh perspective to our high-margin after-sales business. Emmanuelle is an experienced global HR leader with long-standing textile experience at one of the industry's greatest brands. With her leading our people initiatives, we will be able to build high-performing company culture that will prepare us for the future.
Now let's move to the market. Let's look at key indicators on slide number seven. Yes, it is true that consumer sentiment could be better, but this slide also shows plainly that people are still shopping. Retail sales in all major regions of the world were up in 2024 and continue to gather momentum going into 2025. Our customer base, spinning mills, are doing financially slightly better after a difficult year in 2023. At the moment, there is still hesitation to invest into new machinery, but we are seeing initial signs of a market recovery. Maybe a word on spinner's margin. The spinner's margin is naturally very slim. Raw material costs make up around 65%, energy around 15%, and labor costs around 10%. This shows that automation and resource-efficient technologies like ours are instrumental in helping spinners further improve their margins.
Now a deep dive into the market situation on slide number nine. Asia continues to spearhead this recovery. Let's start with the rest of the world. We see growth in Africa and key Asian countries while markets in Europe, North and South America remain flat. Let me spotlight three countries or regions. Türkiye. The overall market remains flat, but we see that our automation solutions are in high demand in Türkiye, where the labor situation deteriorated dramatically after the tragic earthquakes in 2023. South America. Here too, overall markets are flat, but we have seen good new order intake for our machines. This is the result of the reshaping of supply chains and nearshoring in the Americas. Finally, Africa.
This is one of my biggest highlights in 2024 as we signed a strategic framework agreement with ARISE, an operator of industrial parks, and Africa's export-import bank, Afrexim Bank, to revitalize Africa's textile industry through the Africa Textile Renaissance Plan, especially in the sub-Saharan zone. Let's move to India. In India, we clearly see an increased offer pipeline, which should potentially turn into order intake down the road, also fueled by government initiatives. As part of the next-level performance program, we are successfully implementing product power hubs that are helping us move closer to customers and react more swiftly to changing market demands. Finally, the market in China. China is our strongest market. This remains unchanged. Our strengthened local organization is translating into improved go-to-market initiatives. Chinese customers continue to expand also into other Asian countries where we are historically very strong.
The positive investment sentiment in this market persists. Now let's turn to strategy execution. On to our strategy house on slide number 11. I will focus on three elements of innovative solutions where we have a competitive advantage: technology leadership, customer service, and automation and digitization. First, technology leadership. This helps us expand our market leadership with new machines and system sales. One of our flagship innovations is our card, C81, which stands out for two reasons. First, it offers the largest carding area on the market, which makes it more productive and therefore more cost-effective. Second, the machine uses artificial intelligence to provide excellent quality at highest production. The features are carding gap control and threshold level monitoring. We have tested it against competitor machines.
The result was 20% higher productivity, 30% better yarn quality, and finally, less waste, which is not only good for our customers but also for the planet. Let me give you a brief update on our air-jet spinning machine, J70, which I presented a year ago. Since its release into the market, initial feedback has been very positive. I am particularly proud that we signed an agreement to install the world's first complete spinning system using our J70 technology at Guangshi Baishen Textile Company in China. Second topic, customer service. Customer service is at the heart of our strategy, and we are pulling all stops to bring about a step change here. We put the focus in 2025 on speed of delivery, which is critical for our customers with a more decentralized structure. When a machine cannot run, this means an entire production line cannot run.
The cost of not producing is much, much higher than the cost of spare parts. The closer we are to customers, the faster we deliver parts and services, the less price-sensitive customers are. Essential Order is our new e-commerce platform, which features more than 15 million spare parts with a personalized ordering experience. The third topic is automation and digitization. It is clear that to lead the industry, this is where we need to be strong. Just like the rest of the manufacturing industry, the spinning industry is struggling as a result of labor shortages and shifting labor markets. We are therefore introducing key artificial intelligence applications across our product lines to improve productivity and performance. I already discussed our card, C81, so let me briefly spotlight ROBOspin. We are improving ROBOspin with artificial intelligence technology to further enhance efficiency.
The demand for this automation technology is growing persistently. Last but not least, we have completed a concept study of the labor-free mill. Within the next two years, we will move forward to implement and offer all these automation solutions for our customers. Let's turn to R&D on slide number 13. Investments into research and development in the financial year 2024 were CHF 50 million, which amounts to around 5.8% of sales. We successfully and sustainably adapted our cost footprint without losing our innovation edge. As part of the next-level program, we have increased collaboration with third-party R&D providers so we can gain access to an extended external workbench. This concludes my part of the presentation, and I will hand over to Oliver Streuli for the financials. Please, Oliver.
Thank you, Thomas. Good morning, ladies and gentlemen. Welcome also from my side.
I will now present the key elements of our financial performance for the full year 2024 to you. Let me start with the key message on slide 15. 2024 was a success in terms of order intake, despite the continuously challenging market environment. For a fourth quarter in a row, we were able to increase our order intake versus the same period the year before, leading to an overall increase of 34% versus 2023 to CHF 726 million for the full year 2024. In contrast, sales were 39% lower compared to 2023 at CHF 859 million. The result of a very low order intake in 2023 and amplified by a slower than expected market recovery for components and spare parts, especially in the second half of the year.
Thanks to the disciplined execution of our cost measures, especially in overhead costs, we were able to compensate for some of the sales decrease and safeguard an EBIT of CHF 28 million. This represents an EBIT margin of 3.3%, including restructuring costs of 0.6% EBIT margin. Free cash flow came in at CHF 14 million despite heavy cash outflows from the execution of next-level measures. Net debt increased versus prior year despite the positive free cash flow, mainly due to recognition of a lease liability for the new Rieter campus in Winterthur. Despite the extraordinarily low sales volume, we suggest to our shareholders to pay out a dividend of CHF 2 per share, which represents a payout ratio of 86% of net profit. Let us continue with a deep dive in the following slides, starting with order intake on slide 16.
Order intake increased by 34%, driven by machines and systems, but also against an exceptionally low base in 2023. The components division recorded a slight decrease in order intake due to lower demand for components for new machinery equipment, while the after-sales division achieved a slight increase in order intake, predominantly driven by increased demand for engineered solutions such as our automated piecing robot, ROBOspin. Across the regions, we saw a continuously strong market activity in China, followed by a certain recovery in India and especially in South America in half year two, while the rest of the world remained on still muted levels. Let us move on with sales on slide 17. Sales for the full year were 39% below prior year at CHF 859 million.
The drop in sales in local currency was most pronounced in machines and systems at minus 56% year on year, while sales in the components division came in 6% lower. On the positive, after-sales managed a slight growth of 3% in local currency against a difficult market. Let us continue with the order backlog on slide 18. Order backlog at year-end 2024 stood at around CHF 530 million, covering roughly half of a low market scenario sales level. The current level of the order book represents a low, but not unusual situation after a prolonged market downturn when comparing it with long-term historical figures. As can be seen on slide 19, we were able to defend our EBIT margin despite a significant sales drop of 39%. Specifically, the lower sales level led to a negative gross profit volume effect of CHF 152 million compared to 2023.
A better gross profit mix due to a 50-50 sales split between machines and systems versus components and after-sales, as well as cost savings in the amount of more than CHF 58 million in R&D and overhead spend, enabled an EBIT of CHF 28 million or 3.3%. Related restructuring expenses amounted to CHF 5.8 million, as can be seen on the chart on the right-hand side. This means that on a comparable basis, we achieved an EBIT margin before restructuring and impairment of 3.9% versus 6.1% in 2023, which is at the upper end of our next-level EBIT margin ambition in a low market scenario. Cash is king for Rieter, so let's move to slide number 20. Despite various headwinds, we achieved a positive free cash flow of CHF 14 million, which is a key focus.
The main negative cash outflows were related to the execution of the performance program next level, where restructuring actions were executed, which led to subsequent cash outflows in the amount of around CHF 30 million against the restructuring provisions booked as costs in the year 2023, as can be seen on the left-hand side. Let's deep dive into networking capital on the right-hand side, which reveals that we significantly improved on key operational balance sheet items. Specifically, we reduced receivables in the amount of CHF 64 million. We reduced inventories against an already low base in 2023 by another CHF 40 million. We improved payment terms with suppliers significantly, as evidenced by only a slight decrease in account payables, considering the substantially lower procurement volume in 2024 versus 2023.
In contrast, the less operational balance sheet items of advance payments and other liabilities decreased by more than CHF 90 million, having a negative cash impact due to the still muted market sentiment and the consummation of restructuring provisions on the next level. Let us move to slide number 21 on CapEx and depreciation. We were not only disciplined on costs, but also on CapEx. At CHF 25.6 million, CapEx was substantially lower compared to previous years and well below depreciation and amortization. In line with our ambition to achieve a return on net operating assets above cost of capital, we will continue to reduce our fixed asset base to become more asset-light in the medium term. On slide 22, we see the summary of our debt and equity position at year-end 2024.
Despite the positive free cash flow, net debt increased due to the recognition of a lease liability in relation to our new technology campus in Winterthur and M&A effects, where we booked a liability for the entire amount of the still-to-be-executed full acquisition of Prosino. To conclude this slide, we were able to further increase our equity ratio from 28.8% to 33.7%, which puts us on track to reach our strategic target of an equity ratio of more than 35%. I conclude my presentation with the dividend proposal of CHF 2 per share, which we will propose to the shareholders at the upcoming ordinary annual general meeting. The dividend payout is at the upper end of our financial policy, but well supported by the generated net income and free cash flow. That is it for on the financials. Back to you for the outlook, Thomas.
Thanks, Oliver.
We expect a challenging first half in 2025 with regard to sales volume and a stronger second half year depending on the further market recovery. As a consequence, Rieter anticipates a sales volume at the previous year's level for the full year 2025. Despite this, again, exceptionally low sales level, we anticipate a positive EBIT margin between 0-4% for the year 2025 according to the next-level guidance. With that, I conclude my presentation, and I hand back to Rieter Relindis for the Q&A session.
Thanks, Thomas. 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. We will take the questions from the webcast. As usual, the Q&A session will be recorded.
I would like to ask the participants here in the room to wait for the microphone and to state your name and the company you work for before asking your question. Who would like to ask the first question? Please go ahead.
Hi, Andy Schneider at zCapital. My first question would be on the automation solutions you mentioned before, software AI. Can you talk a little bit about the pricing strategy when selling these solutions compared to just machines? Is it true upselling where you have stronger margins and get part of the economics from the client? Is it just a prerequisite these days to have these solutions in order to sell the machines and you do not really get much of the improved economics or efficiency and even probably cannibalizing your machine business because you are selling more potent solutions?
Thank you for the question.
Automation, there are two different types of automation businesses. One is you try to sell automation solutions when there is an expansion of a new or of a spinning mill or you have a new spinning mill. That's like when you build a house. It's much easier to construct a new house than you have to modernize an existing house, which brings me to the second part. Today, those spinning mills are not very highly automated. You offer new additional business. I'm truly convinced that automation is a real add-on. It might even, in a couple of years, become one part of our structure, which is almost an independent division. Why is that so important? Textile industry for the last 150 to 200 years was following cheap labor. It went from Europe to Eastern Europe, then it went to Asia. There is no cheap labor anymore.
Almost nowhere you still have cheap labor. The best example is Turkey. In Turkey today, an operator, so someone who works in the factory at a quite low-skilled work, costs now $1,600 per month. This is much more expensive than, for example, in Eastern Europe today. That is one topic. The second topic is the shortage of labor. Nobody wants to work anymore in a spinning mill. Coming back to Turkey, in Turkey, they could produce much, much more, but they cannot because they do not find the people to produce the volumes which are requested by their customers. It is an urgent need to upgrade with automation solutions, existing spinning mills, and new spinning mills want to have more and more automation solutions, which will lead to a higher price for us.
Now, interesting enough, when you look on those automation solutions, you have automation solutions which are part of the machine. Then you have a higher price per machine. You also have automation solutions where you transport material from one machine to the other machine. This was not existing in the past. Big cans have been moved by workers. Now, how do customers calculate the potential pricing? They say, "I'm willing to pay three years of labor cost saving. That's the price I'm willing to pay for an automation solution." They would like to have a payback within roughly three years. It depends a little bit. The pricing depends a little bit on the labor cost level of a country, being, let's say, very, very different from the left to the right.
In the U.S., you can't run a spinning mill anymore without the highest level of automation. Whereas maybe in Africa, where labor costs are still quite low, this business case is not yet valuable for a spinning mill because the labor is still cheap enough that you can have a lot of people doing a lot of manual work, and you cannot really create a justified business case with an automation solution. I think automation definitely over the years will become an additional business which will be a three-digit million number per year.
Thank you.[ Linderis] , UBS. I have three questions. I would like to ask them one by one. The first two are regarding your new guidance. You mentioned that you see a particularly weak H1. Can you maybe specify why that is and how bad the first half could get?
How much caution do you have priced in this flat sales guidance?
Maybe I start a little bit on the top-line guidance. Visibility at the moment, and I think that's not only for our industry, that's for many industries, is much more difficult than maybe a couple of years ago. We know, of course, what we have in our backlog, and we know when the backlog we have by the end of 2024 should be executed. We can quite precisely calculate in the new machine business how much will be executed in the first half year. This will be quite a small amount in the new machine business.
We also know that in the second half of the year, when you look on our backlog of CHF 530 million, and a big part of it is new machines and systems, will come in the second half of the year. On top of that, you have components and you have after-sales business. We clearly see, and that's the good news, that in the last three months, our after-sales order intake volumes have improved. Because there you have a lot of consumables, and you need a lot of consumables when the capacity utilization in spinning mills is high. We see this capacity utilization is going up. That's good news for us because we generate more order intake now in after-sales, and this takes maybe three to four months until it becomes sales.
Whatever we now sell from April onwards will become sales in the second half of the year. Also with that, we can pretty precisely calculate what will be our volume in the first half year. Of course, especially in the new machine and system business, there are not so many projects to be executed, and if even one falls in the final billing from June to July, then it already has a big impact. This as an introduction, we expect from our full-year guidance roughly 40% of top line in the first half year and 60% of top line in the second half year, which means that the first half year will be a very, very low top line figure. We see that our offer activities are quite high. We also see that single machine sales have improved over the last four months.
We see a lot of activities now in India and in Southeast Asia. A lot of orders should come over the coming months, and then part of it will become sales in the second half of the year. Our share is 40-60. You can calculate by yourself what it means in top line sales for the first half year, which then means, wow, we are really challenged and also in the bottom line. I think, Oliver, we have put all measures in place because we somehow promised independent, even if there is a lower than low scenario, we will commit to our 0-4% guidance for the full year. We demonstrated that also in 2024. I think in terms of cost management, we have tightened the belt everywhere.
Absolutely.
I mean, you have noticed already in 2024, the achieved sales level is below the low scenario that we announced on the next level. However, we reacted to that with additional measures and safeguarded still, I would say, a solid EBIT margin at the upper end of the next level ambition. If you take now a view into 2025, if we speak about the 40-60 sales split throughout the year, you can well imagine that the first half year is pretty challenging. If you analyze that, you are significantly below a low scenario sales level. Nevertheless, of course, we always have the ambition to show a positive EBIT margin regardless of the volume, but of course, there are limitations.
Maybe following up on the EBIT margin, you now manage to get an EBIT margin of 3.3%. Why are you opening the range kind of to the lower end?
Is there something that you assume on the side that you haven't mentioned yet? You know, there are various factors which have to be taken into account. Since we are also partly in a project business, we have global operations, it's very, very difficult given this level of uncertainty to give a more narrow margin guidance. Of course, we always have ambitions, but we are not comfortable to give a more narrow guidance. It's also in line, obviously, with the next level ambition despite the lower sales volume.
I think that's an important point. We always have said it is so difficult to somehow make an EBIT guidance in this industry because of the cyclicity of the business. That was the reason why on the next level we said, okay, there is a low scenario.
Now we are in a lower than low, but there is a low scenario, 0-4%. There is a mid scenario, 4-8%. There is a high scenario, 8-12% EBIT margin. This is what we want to confirm because for us, it has become super important that we deliver as committed. We do not want to create any bad surprises anymore in our bottom line results. The 4%, you know, when you calculate that into dollars or Swiss francs, it is not very widespread because we are serving somehow slightly above the positive EBIT margin. We are confident that also in 2025, we will deliver a solid financial performance.
Thank you. The last question, a broader one regarding tariffs and geopolitical impact that you might currently see with Trump and his tariffs agendas.
I have not checked the Twitter accounts this morning.
Probably there are a couple of hundred messages already there. It's not that easy to exactly forecast what it means for you because tariffs are jumping in, then they are delayed, they are getting out. We have, as part of our next-level program, also done a review of our footprint. The good news is that more and more we produce and we act where our customers are. We do have a diversified supply chain footprint because usually that's the topic where you fall into the tariffs. We have manufacturing sites in China, in India, in Czech Republic, in Germany, and in Switzerland. The U.S., as a key market also for us, is more an after-sales market. It's not so much a new machines and system market. It's more an after-sales market and a components market.
We have a local organization in the U.S. For that part of the business, it is in America for America. For that reason, I think we are not relaxed, but we have a very good setup for potential tariffs from the U.S. administration. Any other questions here from the room?
Yes, good morning. It's Christian Hodlund from Odoo. Maybe just coming back again to your discussion about your EBIT guidance. I mean, we had this CHF 860 million sales in 2024, clearly below your low scenario, and you achieved this 3.3%. Also on the back of this, yeah, really disciplined cost spending. I mean, R&D down 26.8, S&G and A 31.5. I mean, can you go there further?
I mean, having the same amount of sales, I would assume that if you cannot go further, that means you are actually ending in the red, having the same sales. Maybe can you specify on further cost cutting, what is possible? Maybe, I mean, one reason maybe for still being positive could be also a positive product mix. Can you maybe elaborate on that? Thank you.
Maybe I can talk more about the overall actions and maybe about the product mix and the impact, mixed impacts. Oliver can give an answer.
You always can do something more. I think this is something we have also learned here at Rieter. It never stops. It never stops. We cannot change the market environment. Maybe in the past, we were too much focusing on, well, it's a given the market is bad, so results are bad.
This is not the case. You can always adapt to market requirements and challenges. What else can we do? Point number one is besides the pure structural cost initiatives, you also can work on your product cost. Although we were in a challenging market environment, when you look on the gross margins we have achieved in the different businesses, so in the different divisions, we were able to do continuous cost measures also in our direct productive area. We were working a lot on material cost savings. We have a new supply chain ahead. In every supply chain entity, we have a new supply chain ahead. We have completely changed our procurement organization. We have professionalized that. We also are much tougher with our suppliers. We have improved our payment terms with suppliers.
If they do not supply according to our requirements, they will not get paid by 100%. There is a little bit more bullish and aggressive behavior on our mainly material cost structure. The second block is capacity. We have a very big capacity, and the capacity is able to produce more than even in the highest of the highest scenarios. Over time, we have to rethink our capacity and our supply chain footprint. This does not come overnight. This is something you have to work over the next two, three, four years. This can be that you reduce certain capacities, you shift certain capacities. This is definitely something we have on our roadmap. The third element is you go into your structure. Historically, we have been extremely Central Europe focused.
We had a lot of back office functions, a lot of close-to-market functions here in Winterthur. Our markets are in Asia-Pacific and are in Africa and are in the Americas. As part of our next-level program, and this is a continuous process, you cannot do that overnight in one shot. You have to work to shift resources from high-cost countries to lower-cost countries. This also helps you to get a natural hatching of your FX exposure. For us, I think, Oliver, we have done this analysis, how much we would like to have in high-cost countries, in mid-cost countries, in low-cost countries. Of course, you can still do cost savings without reducing your capacities by pure labor arbitrage. Maybe you can explore a little bit on turn every coin and labor arbitrage, what is going on at the moment.
Perhaps to answer first your question on mix, of course, mix has a huge impact. First of all, perhaps that's a bit underestimated, but also the mix of our machine sales, we do not have the same margin with every machine. That's the first level of, so to say, complexity or potential on what you sell in the machines and systems division. Obviously, if you do more after-sales, that has a massive impact on your mix and then obviously on your margin. The biggest potential in the short term is always generate more sales with after-sales. That's also at the moment priority number one on our desks. That on the mix. On cost measures, Thomas mentioned it. I think we did a lot on footprint. You know, initially on the next-level, we closed Ingolstadt, saved us quite some costs.
We also did a lot when it comes to shifting competencies and capacities closer to the market, closer to production. This will be a continuous exercise for the coming years to really adopt the footprint. Key question there is what is our ideal capacity, how much do we need? That has not been decided yet, but there is more to come. It is not a short-term potential, I would say. What can you do, especially on the overhead side? I mean, you can obviously work on headcount. We have done a lot on headcount. What you do there is short work. We have short work in place also here in Winterthur at the moment. That is in place. What is remaining is basically OpEx. We have a huge focus on OpEx at the moment.
Just for reference, our travel costs are one-third of what it was in the past. We do not travel anymore, which is a bit more humble in that aspect. We have an initiative in place, turn every coin, where colleagues can hand in ideas to work more effectively and save costs. That is something that you usually know from a shop floor, from production sites. We do it also in overhead. I mean, Thomas, for instance, he is forfeiting some of his salary. We have other salary cuts in place, so we do everything we can. We turn every stone. Of course, there are limitations to that. I'm not saying we can do a break even at any sales level, but you can rest assured that you really turn every coin and stone.
Maybe to build on that point, two additional elements.
We also have, of course, almost everywhere short-time labor conditions at the moment, also here in Winterthur. Depending on the departments, people are staying at home for one or two days. This we also have in other markets. That is one way how you can short-term also reduce cost. There is one very important topic. Let's take an example. You were at 100 in overhead cost by end of 2022, and you have to go down to 60. We went down with our internal cost to 45, and we added external resources of 15. We came to the 60. For example, in R&D, and I said that in my part of the presentation, we try to keep a certain level of third-party cost. We were cutting internal resources more than what you see in the figures.
With that, we can flexibilize our cost structure. In a worst case, which I do not see at the moment, you just stop the third-party cost without laying off additional people. We did that already. We now have in many, many departments and areas, we now have a certain share of third-party costs where we can breathe. If it would become even tougher, we just reduce and we cancel contracts with engineering companies, with R&D, with BUTD companies. Or we hire more third-party cost to breathe upwards because we also have learned that the cyclicity is not only brutal going down, it is also brutal going up. We already have prepared clear plans by scenario how many people we need for which type of job role we want to hire externally in the moment the market goes back.
Not by hiring internally more people, but hiring external resources. Flexible resources is key in the cyclical market because I cannot sell every year a plot like in Winterthur to finance another round. We have to learn that we have to breathe up and down with those resources, with third-party resources.
Second question I have, and that's also maybe a little bit linked to your thoughts about capacity, what's the right capacity you should have. I mean, we had these scenarios of you. The low scenario, CHF 1 billion, the mid scenario, $1.3 billion, the high scenario, CHF 1.6 billion, with the respective margin targets. Last year, you were clearly below the low scenario. This year, you guide for the same level. Does it mean that actually these scenarios are actually not valid anymore?
I mean, that you have to move down this line so that the mid scenario is maybe not at CHF 1.3 billion anymore, but rather CHF 1 billion, and the high scenario is maybe rather at CHF 1.3 billion instead of CHF 1.6 billion. Has something changed structurally there in your markets that actually you also have to rethink about these scenarios?
It's a very good question, and I can tell you we also have asked that question ourselves. I don't believe so. I don't believe so that our three scenarios really have changed. It is true when you in this industry, you have many people who already worked in 30, 40 years, and everybody says it's the longest period of the downturn they ever have experienced. Usually, it was one year or maybe two years. Now we are in year number four. When you then look and say, okay, by what is the scenario driven?
What's the driver of the scenario? There are two elements, and this makes me very, very confident midterm for this business. Point number one is people. Who buys clothes? I have simplified that, and I say there are very rich people. They pay a hell of money for very few fabrics. That's not the ones which drive our business because they just do not buy enough clothes. They just pay a lot of money. You have a lot of poor people. The poor people usually buy one shirt until they cannot wear it anymore, and then they buy again a shirt. The key driver of our industry is the so-called middle class. According to the United Nations, this middle class has a certain development. Of course, you do not know exactly the figure, whether it is true or not.
They made an analysis how the middle class is developing from 2020 to 2030, and even they made a forecast to 2040. The middle class, according to the definition of the United Nations in 2020, was 1.6 billion people. Now, this middle class will grow until 2030 to 2.5 billion people, 900 million people more. This means consumer market, end market, that you go from 1.6 to 2.5. In fact, the whole textile market should grow by 50% over 10 years. The forecast for 2040 adds another 600 million people, and then you are above 3 billion in 2040. Okay, I have to admit, 2040, you know, at the moment, it's difficult. These are long-term trends. This is a key driver where I say the material sold in the consumer markets will definitely increase. No doubt about that.
The majority of this growth in the middle class comes in India and China. The domestic demand in India and China will further grow, and this will fuel our top line. I have no doubt about that. The second topic is consumer sentiment. Even if you have a growing middle-class population, as long as people do not know whether they still have enough money to pay the higher energy bill, they are somehow scared by inflation, they are not sure about the macroeconomics, and not everybody is following tweets on X on a half-hour basis, there is a certain uncertainty on the consumer base. We have fundamentally a higher base because we have more middle-class people, but people are at the moment uncertain. A lot has to do with geopolitical detraction. We all hope that this will disappear. When this disappears, then this huge demand is there.
This huge demand is there. Now, a part of this demand will be consumed by higher efficiency of machines because each generation of machines is more productive, is more efficient, so it's eating up a certain new machine sales. There are other growth opportunities. We talked before about automation. Last but not least, for us, absolutely key, and we can do, and we will do a much, much better job over the next coming years, this is the after-sales business. Because after-sales, first of all, it has high margin. Secondly, we know how much business we do with our own machines, how much business we could do with our own machines. We believe we can double after-sales business over the coming years. This will compensate and is integrated in our low, mid, and high scenarios.
The mix in a high scenario might be different than it was in the past. In 2022, we made CHF 1.5 billion top line, and CHF 1.1 billion was new machines and systems. This will not be the case in the future high scenario. It will be there still a little bit more in new machines and sales, but it will be much more balanced. With this, we will fuel our not only top line, we will also fuel our bottom line. This company, midterm, will generate double-digit EBIT margins. I have no doubt about that.
If I might add on this answer, also take into consideration that last year was a very strong air-jet market, and we were not ready yet with our J70 to fully attack this market, so we missed out on a bit of that market.
Nevertheless, I mean, our next-level sales scenarios, they do not mean that we cannot go below, but these are the basic planning assumptions, as Thomas mentioned.
I would have an add-on question on the outlook for this year. You mentioned better order intake over the past few months, three, four months. Maybe you can elaborate a little bit on that because we are not really seeing it in the fourth quarter numbers, obviously. That would probably mean that January, February have been much better. Maybe you can give us some more color on that, what the sequential improvement you have seen, a few numbers.
Without being too much in the detail, because otherwise you ask me, you give me every month a call and you ask me about your order intake.
What I can confirm by the end of February, order intake is substantially higher than the previous year level by the end of February. This I can confirm. Now, in March last year, we had a huge order from DIW. I think it was CHF 62 million where we had a huge order in China, and this does not come every month. I can say by the end of February, we clearly see a trend change year on year in our order intake. The very good thing there is that we see it also in our more profitable areas, which is the after-sales business, spare parts, repairs, and also components. This will help us to add maybe to the previous question, you know, our confidence that in this lower than low, we still will be able to do a positive result.
Now, in machines and systems, it's more a project business. The project business there, we mentioned that in India, our offer pipeline is the highest since three years. India is really now, and it's not only replacement of old machines in existing mills, it's also the planning of new mills. Also in China, we do have a lot of projects we can step in. This goes into the direction Oliver has mentioned before. China is an air-jet market. We were not in that market in the past. It's about 20% of the new machines and systems and spinning market. We were not present. Now we are starting to enter, and you have always growth opportunities in those markets. I believe it looks good.
There are other markets which have been extremely low where we see now more activity, where we have done the first orders the first time since two years. Markets like Uzbekistan, an important textile market, we have done the first orders again. We had no order in 2024. We had no order in 2023. I am quite confident about the market change. Always the question is how fast it is, but there is no sign at all that it stays on this low level we have suffered over the last three years. I do not see any sign for that.
Okay. I will open now the line for the participants in the conference call. I can see that Mr. Fergus [from Entitet] has a question. Maurer, can you please open the line?
Yes, hello. Can you hear me?
Very good. Clear and loud.
Good. Good morning.
Thank you. Can you a bit tell us about how many people you still have then in Winterthur, how much that again has now declined, and in Switzerland overall? Also, I have heard that you forfeited some of your compensation. How much does that come? Maybe a third question. You mentioned Africa. You said labor costs are much lower there. Could it then not be that just the whole spinning industry will move to some extent to Africa to really benefit from lower costs there? Or is Africa not ready for this yet?
Any more questions? I have written down three.
Yes. Maybe a very last one, yes, because we have just learned that jeans from the U.S. now also have a tariff on if they go into the EU. These tariffs, I mean, how much might they impact the textile industry?
That would also interest me.
Okay. I start maybe with myself. We had a tough year in 2024. We also have a tough year in 2025. I mentioned that we have short labor almost in every location at the moment. Here in Winterthur, depending on the department, people stay at home one day or two days. On average, it is roughly 20% when you go through the whole organization here in Winterthur. When you have 20% short-time labor, you get compensated as an employee with 80% by the labor government. 80% of 20 is 16, so you miss 4% of your salary per month. I decided that in the first quarter, I have reduced. I was not asked for that. I just have done it by myself.
I have informed the board of directors that I reduced my fixed base by 10% just to be solidaric with the employees who are here. In all fairness, I can afford more percentages than maybe an employee here. Reading newspapers in the last couple of days, I think it was a good sign from my side. I have not promoted that externally. It was more for the internal, but as Oliver has mentioned and you have asked, I just wanted to give a sign also to our employees. Thank you. Second, how many people we have in Winterthur? It's roughly 450 people. When you look on total global distribution, we have roughly 5,000, a little bit more than 5,000 people. It's quite simple. You can say this is Switzerland, Germany, Czech Republic, India, and China, and you put everywhere about 1,000 persons.
The other 200 are distributed in smaller regions. We are here in Switzerland a little bit short of 1,000 employees, but it has been quite stable. There is no further plan for reduction here in Winterthur. We had a second round in autumn 2024 here in Winterthur where we have shifted market functions into the markets. This is at the moment in execution and should be finished until quarter two. Tariffs. Tariffs. The jeans tariffs. Jeans are usually produced with open-end machines, so rotor machines. That is usually the way how you produce that jean because you can throw in all the dirt and everything which is not good enough for ring spinning you put into the jeans.
I don't know whether that is the reason that some jeans have holes, but it's probably more a fashion idea and has nothing to do with the quality. The tariffs are more impacting, of course, the end user markets and the retailers. Yes, this could have an impact on these open-end machines, but it's like the air-jet area. It's not our strongest segment we have, point number one. It is therefore for us as a machinery sales, not really relevant. As I mentioned before, the other type of tariffs for the U.S., we are not so much impacted because it's mainly an after-sales business for us. Labor cost Africa. It is true. The Sub-Saharan Zone is one of the cheapest labor markets in the world, but it's much more interesting what happens there.
All these countries like Benin, Ivory Coast, Togo, and then you go to the east, you go to Nigeria, Kenya, Ethiopia, these are all cotton producers. What they did in the past, they were selling the cotton to the rest of the world. Cotton, let's say a kilogram cotton costs $2. Out of a kilogram cotton, you make five shirts because a shirt is roughly 200 grams. Now let's assume CHF 50 for a shirt. The end price of this one kilogram cotton is CHF 250. These African countries make a value generation of CHF 2. What we would like to do is that they are increasing and they export 97% of the cotton.
What we would like to do together with ARISE and the Afrexim Bank is that they increase the share of own used cotton, maybe up to 20%. Still, 80% goes into export, but they should do much more value creation in their own country. They will generate a lot of jobs for the usage and the consummation in Africa. Today, the biggest exporter of all these colored fabrics is coming from Central Europe. The Sub-Saharan Africans buy the fabric they wear from Europe. I'm not sure this is a very sustainable exercise for them. It is increasing for own consummation, not for export of fabrics. It is more for own consummation, the value creation in these countries. The three of us, Afrexim Bank financing, ARISE creating the industrial parks, and Rieter being responsible for all type of textile machines.
We have now a strategic alliance, and I believe over the time, it takes some time to rise that up. This will be a very good business case for us, and we will also establish an own after-sales organization in the Sub-Saharan Zone. Because from day one, we would like also to benefit from the after-sales business, which is a lot of wear and tear parts and consumables we would like to deliver and to install locally with our own people. Does that answer your question?
Thank you very much. Yes. Just to make sure, you said 50 shirts are made out of one?
Five. Five.
Sorry, only five. Okay. Okay. Sorry. Sorry. Okay. Five. Thank you. Of one kilo. And those five then get sold for 250, you said?
I take a figure of 50 as an average. It depends on the country. It can also be 20.
Even if it is 20, then you have CHF 100, and you do a value creation as a cotton producer of two. From the two, you go to four to make yarn. Then there is someone else who gets all the $246. Any other question online?
Y es. No, not online, but in the webcast. I have four questions from Walter Bammert from ZKB. The first question is, I see EBIT break-even achieved in the second half of 2024. Is this sustainable now? Achieved EBIT break-even, you mean? In the second half of 2024, yes.
This is probably depending on the volume we have. Maybe Oliver, that's a difficult question. Yeah, that's a very difficult question. You know, we don't provide a guidance on our break-even because it's also simply speaking, it's very difficult to say. It heavily depends on the mix.
As I mentioned before, on the types of machinery you sell, what is your share of after-sales? What I can certainly say is with the existing capacity that we have, we are surfing around the break-even point with the run rates that we had in the second half of the year, but that is evident in the numbers presented.
Okay. The second question is, after-sales profitability suffered in the second half of 2024. How can you explain this and how stubborn is this effect?
That has predominantly to do with mix within after-sales. We suffered a bit on the spare parts side, also a reflection of the weaker market than expected. That is one thing. The other thing is purely a volume topic. We have also capacity there to do much more sales. If you lose that sale, you get an under-absorption.
Those were the two effects weighing on profitability in after-sales in half year two.
Maybe to build on that as an additional remark to explain that a little bit, after-sales has usually like four different sub-businesses. One is spare part sales. There you have to be fast, be close to the customer. You have to have an e-commerce platform, and it's transactional drum beating. Similar, the second part, which is repairs. You are repairing prints, electronics, machines, motors. Also there, you have to be very close to customers. The third element is our installation and service business. Our people in the field who are installing machines, who are also servicing certain machines, that's quite stable, but depending on new machine sales. The fourth one is engineered solutions. That's more like machines and system business. ROBOspin, for example, is included there.
We had a shift towards more ROBO spin, which has a slightly lower margin. I think not only market-driven, but also internally driven. We have not done the best job we could have done in the sale of spare parts and repairs, to be frank. I think we have seen in the last two and a half months this has quite substantially changed with a new setup of our sales organization in after-sales and repairs. We see we have introduced the so-called, today it is difficult to use the word, but we now have war rooms in all the different divisions daily. Because after-sales business is transactional business, you have to drum beat every single day. With that, we now see that our offer pipeline is increasing, our order pipeline is increasing, and as a consequence, our sales pipeline will increase as well.
We did some organizational changes to really strengthen this high margin of the sales business.
The next question, no further restructuring or other one-off cost in 2025?
We do plan certain restructuring activities in 2025. That is predominantly a continuation of the next-level program, but not in the magnitude as seen in the past. There will be some costs in 2025.
Why such conservative guidance? This does not match the market signals and the achieved operating performance margin in upper range of 0-4% for the full year 2025.
Maybe I talk about the top line. I think we addressed that also in the one or in the other discussion. When you look on the sales funnel, you have some early indicators like the mill utilization, positive. You see the retail sales, positive. We measure certain parts. We are monitoring, for example, travelers.
These are in ring spinning machines. You have to exchange them every 10 days. If the machine is running full speed all the time, you need much more travelers. We see our sales in travelers is going up. We had in February the highest amount since three years. There are a lot of positive signs in our, let's say, market radar and sales funneling. Now we have seen that our offer pipeline is increasing. The next step, if we do a good job and we have increased our hit rate in all the businesses, it will mean we will have an increase in order intake. We want to do a better order intake in 2025 than we had in 2024, which was already 34% higher than 2023, which was, in all fairness, quite a super, super lower than low scenario year.
All these indicators are on green light, and then it will become sales. Now, the key question is the timing. If you have higher offers today, when does it impact your sales volumes, your billing volumes? This depends. In after-sales, it takes you maybe three, four months. In engineered solutions and in certain investment goods in after-sales, it takes you maybe six months. In new machines and systems, it takes you six, nine, sometimes twelve months. Whatever we will sell in the second half of 2025 will not become sales anymore in 2025. It will become sales in 2026. In all fairness, I would love that it stops that each time I have to think about on January 1 how we can fulfill our sales volume for the year. I would love to have now a big fat backlog again.
Let's also work on good sales in the second half of the year. What was the second question?
I don't recall. Margin upper range of 0-4% for the full year 2025.
No, we did not communicate upper range. We communicated from 0-4%. Again, that's a mix of visibility that we don't have, especially on top line. It's in line with our next level margin ambition despite the lower volumes.
I have two additional questions from Amira from Oddo. How do you explain the slight drop in the spinners' margin while the rest of the world and India are progressing?
Good question. First of all, not easy to answer. I also have to say, the biggest drop in the spinners' margin has happened in China.
In China, they do have still a certain overcapacity because China in the last five to ten years had to somehow redefine themself. In the past, China was mainly exporting to the rest of the world. Now China is more covering the demand within China. The cotton area of China, why is that the case? The cotton area of China comes more from regions which are internationally not very popular. They come more from the northwest region on the Chinese map, where there is a certain ban on products in Anglo-Saxon markets. This shift into the local demand has led to certain overcapacities. Now the demand is increasing. As I mentioned before, the middle class is growing. Consumer sentiment is not the best, but it is also improving.
Latest PMI studies and also consumer confidence index are improving, especially towards the end of the year and into 2026. I think this will improve. What are they producing? We have this big, big customer, which we have done very good orders last year. This customer is extremely cost competitive. This customer tries, according to Porter, he tries to win in the market with cost leadership. All the others are now under heaviest price pressure in China because they have one big, big competitor coming up who is purely driving cost with standardization and automation. This margin, this spinners' margin is suffering in China. The second reason is that it's always the question to what cost do they import cotton? China is producing more yarn than they produce cotton for it. They have to import cotton.
The cotton price at the moment, the import cotton price for them is a little bit higher than the local cotton price, which for China means they have a drop in their margin. It's great for the rest, but it's not so good for China. India is doing well. They will further improve the margin because they have now almost full capacities. All the big customers are between 90-100% mill utilization. This 85, 86, 87 comes more from the smaller spinners who have not the financial reserves to speculate a little bit with cotton price. They have to buy whenever they need it. The cotton price went up in the last couple of weeks and months. Now the smaller spinners, they have a higher cotton price, and this is squeezing their margins. The big ones, they were clever.
They have bought on the lowest market price, also some reserves in cotton. They make quite good margins now. Europe, I think, has also a little bit to the rest of the world, has a little bit to do with the end user market. We talked about jeans, open end. Higher quality yarn and applications are quite stable, whereas the lower quality applications are a little bit more under pressure. The 68% mill utilization is used for profitable yarn. You remember when we had the chip crisis, what car manufacturers did? They were selling luxury cars, and they had the best profits ever. To a certain degree, this is at the moment in the rest of the world happening in the textile industry.
The second question is, could you give us more details on the dynamics in Africa, excluding the contribution of the contract in Egypt?
Excluding the contract in Egypt. I wanted to talk about the contract in Egypt. This huge contract of roughly CHF 200 million, all the equipment has been shipped. The last equipment is now in installation, and the installation part will be part of our P&L in 2025. Besides that, I see clearly Egypt as a future market. Why? They have quite low labor costs, and they have quite low energy costs. They have their own cotton, you know, this famous Egyptian cotton, which is considered as one of the best cotton in the world. They are very close to Europe. Logistic costs are quite favorable for them. Egypt, in my opinion, is a future market.
I think there could be a second one coming up. This could be Morocco because Morocco is even closer to the European continent, has historically quite a strong textile industry, not spinning, but all the other ones. We have seen there are a lot of advantages if you have a broadly integrated supply chain. It could be that Morocco also will become a booming country in the near future. Also in Europe, I mean, Oliver, you by yourself, you have sold a spinning mill in Italy. Europe, the less labor you need, labor arbitrage does not matter so much anymore. I think also in Europe, some high-quality manufacturers are coming back to Europe.
I have no more questions in the webcast or in the conference call. If there are no more questions in the room, thank you too.
Okay, I would like to close, ladies and gentlemen. I hope it is also for you clear that our ambition is clear. We want to deliver as committed. Independent of where we are in this cycle of the industry, we want to always achieve positive results. This with our new strategy, which we are now implementing step by step. With this, I close the annual press conference. Thank you very much for your interest. I wish you a good rest of the day and tomorrow or at the evening, a good weekend. I say goodbye. All the best for you. Thanks a lot. Thank you for your interest.