From the Sector

Highlights Q4 2023 (compared with Q4 2022)

• Revenue in constant currencies up 4% on higher volumes and pricing (reported revenue -3%)
• Operating income improved to €214 million (2022: €103 million)
• Adjusted operating income at €221 million (2022: €126 million); ROS at 8.7% (2022: 4.8%); €244 million before €23 million negative impact from hyperinflation accounting
• Net cash from operating activities positive €574 million (2022: €291 million)

Highlights full-year 2023 (compared with full-year 2022)

• Revenue in constant currencies up 5% driven by pricing (reported revenue -2%)
• Operating income improved to €1,029 million (2022: €708 million)
• Adjusted operating income at €1,074 million (2022: €789 million), despite €77 million adverse
• currency effects from translation; ROS at 10.1% (2022: 7.3%)
• Adjusted EBITDA at €1,429 million (2022: €1,157 million), despite €92 million adverse currency
• effects from translation
• Net cash from operating activities positive €1,126 million (2022: €263 million)
• Net debt to EBITDA leverage ratio improved to 2.7 (2022: 3.8)
• Final dividend proposed of €1.54 per share (2022: €1.54)

Outlook mid-term
For the mid-term, AkzoNobel aims to expand profitability to deliver an adjusted EBITDA margin of above 16% and a return on investment between 16% and 19%, underpinned by organic growth and industrial excellence. The company aims to lower its leverage to around 2 times in the mid-term, while remaining committed to retaining a strong investment grade credit rating.

• Sales of CHF 1 418.6 million in the financial year 2023
• Order intake of CHF 541.8 million in the financial year 2023; order backlog of around CHF 650 million as of December 31, 2023
• EBIT margin of around 7% expected for the full year 2023 at the upper end of the guidance
• Market remains challenging

The Rieter Group closed the financial year 2023 with slightly lower sales than in the previous year. According to the first, unaudited figures, total sales of CHF 1 418.6 million were achieved, which is around 6% down on the previous year (2022: CHF 1 510.9 million). In line with expectations, the order intake of CHF 541.8 million was considerably below the previous year (2022: CHF 1 157.3 million). Rieter expects a positive EBIT margin of around 7% for the full year 2023 (2022: 2.1%).

Outlook
Rieter is operating in a challenging market environment due to the economic and geopolitical conditions as well as the continuing weak demand. There are initial signs of a market recovery visible for the financial year 2024. Rieter will present an outlook for the financial year 2024 at the annual results press conference on March 13, 2024.

The continued weak development of the markets relevant to Lenzing, coupled with very cautious market expectations in 2023, requires a reassessment of Lenzing AG’s macroeconomic environment.

Taking into account the current lack of market recovery, the previous earnings forecast is not expected to be achieved. The Lenzing Group is therefore adjusting its forecast for earnings development and is assuming EBITDA in a range of EUR 270 mn to EUR 330 mn for the 2023 financial year.

CEO Stephan Sielaff: “The recovery expected for the second half of the year in the markets relevant to us has not yet occurred. This makes the early measures we took all the more correct. We launched an ambitious cost reduction program back in November 2022, which delivered the expected results ahead of schedule. Building on this, we are implementing a holistic and consistent value creation program with a focus on measures to strengthen profitability and cash flow generation and to exploit the growth potential in the fiber markets through targeted sales activities.”

The Lenzing Group will announce further details about the value creation program when it publishes its quarterly results on November 3, 2023.

• Revenue of US$4B, a decline of 1% QoQ and 27% YoY
• Reported EBITDA of US$321M, an increase of 7% QoQ and decrease of 68% YOY
• Operating cash flows of US$491M
• Net Operating Debt to Equity of 0.95x
• Reported EPS of THB 0.04

Indorama Ventures Public Company Limited (IVL) reported marginally improved quarterly earnings as the company’s inherent advantages and continued focus on improving competitiveness helped bolster its business amid a continued weak operating environment.

Indorama Ventures achieved Reported EBITDA of $321 million in 2Q23, an increase of 7% QoQ and a decline of 68% YoY. Sales volumes remained resilient, rising 4% QoQ, amid continued destocking in the global chemicals industry from its peak in 4Q last year. Management is taking steps to conserve cash and safeguard the company’s competitive advantages as the global industry is impacted by increased capacity and lower margins with China boosting exports to offset muted domestic demand. Measures include redoubling efforts to reduce working capital and capex targeting $500 million of cash savings this year, optimizing the company’s European manufacturing footprint, and continued focus on Project Olympus, digitalization, and organizational enhancement.

Volumes are expected to improve in the second half of the year, with all three of Indorama Ventures’ business segments benefiting from the management measures and a gradual improvement in the outlook for the industry. Combined PET, the company’s largest segment, posted Reported EBITDA of $194 million, a 37% increase QoQ as destocking eased in most markets and supported stable volumes. Sales volumes are expected to grow in the second half of the year as manufacturing is optimized in Europe and expansion projects ramp up in India.

Fibers segment achieved Reported EBITDA of $20 million, a decrease of 37% QoQ, impacted by lower margins in the Lifestyle vertical and weak demand for Hygiene products in Europe. Volumes are expected to improve as manufacturing in Europe is optimized and expansion projects come online in the U.S and India. Mobility fibers volumes will see improvement in line with increasing automotive demand. Integrated Oxides and Derivatives (IOD) segment posted a 27% decline in QoQ Reported EBITDA to $94 million amid destocking in Crop Solutions market. Volumes will continue to be supported by reducing levels of destocking in the downstream portfolio.

• Revenues: 123.7 million euros (stable)*
• EBITDA before non-recurring items: 19.7 million euros (-12%)*
• Net income: 7.3 million euros (-21%)
• Free cash flow before non-recurring items: 9.2 million euros
• Revised 2023 outlook due to wait-and-see attitude of customers

Lectra’s Board of Directors, chaired by Daniel Harari, reviewed the unaudited consolidated financial statements for the first quarter of 2023. Comparisons between 2023 and 2022 are based on 2022 exchange rates unless otherwise stated (“like-for-like”). As the impact of the acquisition of TextileGenesis on the financial statements for 2023 is not material, like-for-like changes exclude only the variations in exchange rates.

See the attached document for more details about the financial statements.

International technology group ANDRITZ has started the 2023 business year with unchanged high growth dynamics despite a slowing global economy. Revenue and operating result both increased significantly by well over 20 percent in the first quarter of 2023 compared with the same period of the previous year. Net income improved by almost 50 percent to 104.5 million euros (MEUR). Order intake reached a favorable level of 2.4 billion euros but was 6.5 percent below the figure for the first quarter of 2022, when the booking of two large-scale orders had provided a peak.

The key financial figures developed as follows during the reporting period:

• Order intake amounted to 2,420.2 MEUR and was thus 6.5% below the high level of the previous year’s reference period (Q1 2022: 2,588.6 MEUR), which included two large-scale orders. The Metals business area was able to increase its order intake significantly compared to the previous year’s reference period.
• The order backlog as of March 31, 2023 amounted to 10,407.8 MEUR and has thus increased compared to 2022 (December 31, 2022: 9,976.5 MEUR).
• Revenue at 1,962.6 MEUR was 28.5% higher than the reference figure for the previous year’s reference period (Q1 2022: 1,526.9 MEUR). All four business areas were able to significantly increase their revenue compared to the previous year.
• The operating result (EBITA) increased in line with revenue, reaching a very favorable level at 158.5 MEUR in the first quarter of 2023 (+29.6% versus Q1 2022: 122.3 MEUR). The Group’s profitability (EBITA margin) increased slightly to 8.1% (Q1 2022: 8.0%).
• Net income (without non-controlling interests) increased significantly to 104.5 MEUR (Q1 2022: 71.5 MEUR).

Following the successful first quarter, ANDRITZ confirms its previously published outlook for the full year 2023. Both revenue and earnings for the full year are expected to be above the level of 2022.

• Sales of CHF 890.3 million in second half-year 2022
• EBIT margin of around 2% expected for full year 2022
• Order intake of CHF 1 157.3 million in 2022; order backlog of around CHF 1 540 million as of December 31, 2022
• Preparations for ITMA 2023 on schedule
• Implementation of action plan to increase sales and profitability ongoing
• Rieter site sales process on schedule

For Rieter, in addition to the geopolitical uncertainties, the 2022 financial year was characterized by three main challenges:
Due to the rapid rise in inflation, the exceptionally high order backlog of around CHF 1 840 million at the beginning of 2022 was processed at significantly higher costs. It was only possible to offset these higher costs in part by means of price increases and other remedial measures.

In order to safeguard deliveries, it was necessary to compensate for serious material bottlenecks, particularly in electronic components, which resulted in considerable additional development expenditure.

Major expenses were also incurred in connection with the acquired businesses (Accotex, Temco and Winder).

Sales
The realization of sales from the exceptionally high order backlog developed better than expected. With sales of CHF 1 510.9 million, Rieter achieved an increase of 56% compared with the previous year (2021: CHF 969.2 million). In the second half of 2022, especially in the fourth quarter, the measures introduced to address material bottlenecks had a positive impact. Consequently, sales increased to CHF 890.3 million compared with the first six months (first half-year 2022: CHF 620.6 million).

EBIT margin
The trend in the EBIT margin was strongly influenced by substantial cost increases, which could only be offset in part through price increases and other remedial measures. In addition, to compensate for material shortages, expenses were incurred in connection with the development of alternative solutions and the acquired businesses.

Rieter succeeded in improving profitability compared with the first half of 2022 due to the higher sales volume and offsetting measures to compensate for increased costs, and expects a positive EBIT margin of around 2% for the full year 2022 (2021: 4.9%).

Order intake
In line with expectations, the order intake of CHF 1 157.3 million in 2022 was below the record year of 2021 (CHF 2 225.7 million). The market situation is characterized by investment restraint due to geopolitical uncertainties, higher financing costs and consumer reticence in important markets.

Order backlog
The company had an order backlog of around CHF 1 540 million at the end of 2022, which thus extends well into 2023 and 2024. In 2022, Rieter recorded order cancellations of less than 10% of the order backlog of CHF 1 840 million at the beginning of the year.

Preparations for ITMA 2023 on schedule
Rieter has continued to boost its innovative capability and, in order to further extend its technology leadership, will present new innovative solutions at ITMA 2023 in Milan.

Action plan to increase sales and profitability
Implementation of the action plan to increase sales and profitability is ongoing. With regard to the profitability of the order backlog, which remains high, the implemented price increases in combination with a favorable trend in costs, particularly in logistics, are having an impact. In addition, progress was made in eliminating material bottlenecks and reducing expenses for the three acquired businesses.

Rieter site sales process
The sales process for the remaining land at the Rieter site in Winterthur (Switzerland) is proceeding according to plan. In total, around 75 000 m² of land will be sold. The Rieter CAMPUS is not part of this transaction.

Results press conference 2023
Rieter will provide further details on the 2022 financial year and an outlook for the 2023 financial year on March 9, 2023.

• Sales of CHF 366.8 million in the third quarter, CHF 987.4 million after nine months
• Order intake of CHF 226.4 million in the third quarter, CHF 1 095.8 million after nine months
• Order backlog of around CHF 2 000 million as of September 30, 2022
• Precautionary measures taken against potential energy crisis in Europe
• Financing of a Professorship for Artificial Intelligence
• Rieter site sales process on schedule
• Outlook 2022

Rieter recorded a significant increase in sales in the third quarter of 2022, reaching a level of CHF 366.8 million (2021: CHF 257.3 million). The measures introduced to increase sales and profitability in the second half of 2022 are taking effect and will continue to be implemented in a systematic manner. These include a close cooperation with key suppliers, the development of alternative solutions to eliminate material shortages, the enforcement of price increases, and the improvement of the margin quality of the order backlog.

The order intake of CHF 226.4 million in the third quarter of 2022 reflects the expected normalization of demand for new equipment compared to the record year of 2021, which was characterized by catch-up effects and the regional shift in demand. In addition, the well-known uncertainties and risks and the continuing extremely long delivery times at key manufacturers had a dampening effect on demand. Due to the slowdown in capacity utilization in the spinning mills, demand for consumables, wear & tear and spare parts also declined in the third quarter of 2022. Major orders continued to be recorded from Turkey, Uzbekistan, and China.

Rieter has a high order backlog of around CHF 2 000 million as of September 30, 2022 (September 30, 2021: CHF 1 562 million), which will guarantee capacity utilization in all three business groups until well into 2023 or rather 2024. The cancellation rate in the reporting period was around 5% of the order backlog.

Outlook 2022
Rieter anticipates weakened demand for new systems in the coming months. The demand for consumables, wear & tear and spare parts will depend on the capacity utilization of spinning mills in the months ahead.

For the full year 2022, Rieter expects sales of around CHF 1 400 million. The realization of sales revenue from the order backlog continues to be associated with risks in relation to the well-known uncertainties.

Despite significantly higher sales compared to the prior-year period, Rieter expects EBIT and net result for 2022 to be below the previous year’s level. This is due to the considerable increases in the cost of materials and logistics, additional costs for compensation of material shortages as well as expenses in connection with the acquisition in the years 2021/2022.

Cotton Incorporated published its monthly economic letter of August and shared new insights of the cotton prices:

Cotton prices continue to be caught between the two competing storylines that have been in play for the past several months.
On one side, there is the deteriorating global macroeconomic situation.  The International Monetary Fund (IMF) lowered its projection for global economic growth in both 2022 (3.2%) and 2023 (2.9%) in the updates released in late July.  Current IMF forecasts are significantly beneath those from January (called for 4.4% growth in 2022 and 3.8% growth in 2023) and April (called for 3.6% growth in 2022 and 3.6% growth in 2023).  The evolution in the macroeconomy was a likely factor contributing to the shift in investors’ outlook on the commodity sector, which led to a collapse in prices for cotton and a range of other commodities in June and July.

Beyond the weakening macroeconomic environment, there also may be factors associated with cotton supply chains that could affect demand during the 2022/23 crop year.  Downstream consumer markets for cotton can be viewed as more discretionary than other spending categories, such as food, energy, and lodging, that experienced some of the sharpest effects of inflation.  Given price increases for necessities, consumers may have less income to devote to apparel and home furnishings.

In the U.S., consumer spending on clothing has been flat for the past year.  However, it has been holding at levels that are 25% higher than they were in 2019.  If U.S. consumers pull back on clothing purchases, it may hit the market just as retailers have caught up with consumer demand after the onset of the shipping crisis.  In weight volume, the cotton contained in U.S. apparel imports was up 22% year-over-year in the first half of 2022.  Relative to 2019 (pre-COVID and pre-shipping crisis), the volume in the first half of 2022 was up 23%.  Given strong import volumes, if there is a dip in consumer demand, inventory could build both at retail and upstream in supply chains.  This could lead to cancelations, potentially all the way back to the fiber level, where contracts signed at prices higher than current values could be particularly susceptible.

Tight U.S. supply is on the other side of price direction arguments.  Cotton is drought tolerant, and that is why it can be viably grown in perennially dry locations like West Texas.  However, cotton requires some moisture to germinate and generate healthy yields.  West Texas has had very little rain over the past year, and drought conditions have been extreme.  As a result, abandonment is forecast to be widespread.  It remains to be seen exactly how small the U.S. crop will be, but the current USDA forecast predicts only 12.6 million bales in 2022/23 (-5.0 million fewer bales than in 2021/22).

Meanwhile, demand for U.S. cotton has been relatively consistent, near 18 million bales over the past five crop years (an average of 15.5 million bales of exports and 2.7 million bales of domestic mill-use).  A harvest of only 12.6 million falls well short of the recent average for exports alone, and U.S. stocks were near multi-decade lows coming into 2022/23.  All these statistics suggest shipments from the world’s largest exporter may have to be rationed in 2022/23.  If cotton is not readily available from other sources, the scarcity of supply from the U.S. could support prices globally.

Simultaneously, there is weakness from the demand side.  The market has struggled to find the balance between the weakened demand environment and limited exportable supply in recent months.  The conflict between these two influences makes it difficult to discern a clear direction for prices and suggests continued volatility.

• Currency-neutral sales up 4%, despite more than € 300 million negative impact from macroeconomic constraints
• Markets representing more than 85% of the business grow 14% overall
• Gross margin down 1.5pp to 50.3% reflecting significantly higher supply chain costs
• Operating profit reaches € 392 million
• Net income from continuing operations amounts to € 360 million
• FY 2022 outlook reflects double-digit growth during the second half of the year

“Our Western markets continued to show strong momentum in the second quarter amid heightened macroeconomic uncertainty. With Asia-Pacific returning to growth, markets combined representing more than 85% of our business grew at a double-digit rate,” said adidas CEO Kasper Rorsted. “With sports back at center stage this summer, revenues in our strategic growth categories Football, Running and Outdoor all increased by double digits. However, the macroeconomic environment, particularly in China, remains challenging. The recovery in this market is – due to continued covid-19-related restrictions – slower than expected. And we have to take into account a potential slowdown in consumer spending in all other markets for the remainder of the year.”

Currency-neutral revenues increase 4% despite macroeconomic constraints
In the second quarter, currency-neutral revenues increased 4% as adidas continued to see strong momentum in Western markets. This growth was achieved despite continued challenges on both supply and demand. Supply chain constraints as a result of last year’s lockdowns in Vietnam reduced top-line growth by around € 200 million in Q2 2022. In addition, the company’s decision to suspend its operations in Russia reduced revenues by more than € 100 million during the quarter. Continued covid-19-related lockdowns in Greater China also weighed on the top-line development in Q2. From a channel perspective, the top-line increase was to a similar extent driven by the company’s own direct-to-consumer (DTC) activities as well as increases in wholesale. Within DTC, e-commerce, which now represents more than 20% of the company’s total business, showed double-digit growth reflecting strong product sell-through. From a category perspective, revenue development was strongest in the company’s strategic growth categories Football, Running and Outdoor, which all grew at strong double-digit rates. In euro terms, revenues grew 10% to € 5.596 billion in the second quarter (2021: € 5.077 billion).

Strong demand in Western markets
Revenue growth in the second quarter was driven by Western markets despite last year’s lockdowns in Vietnam still reducing sales, particularly in EMEA and North America, by
€ 200 million in total. In addition, the top-line development in EMEA was also impacted by the loss of revenue in Russia/CIS of more than € 100 million. Nevertheless, currency-neutral sales grew 7% in the region. Revenues in North America increased 21% during the quarter driven by growth of more than 20% in both DTC and wholesale. Revenues in Latin America increased 37%, while Asia-Pacific returned to growth. Currency-neutral revenues increased 3% in this market despite still being impacted by limited tourism activity in the region. In contrast, the company continued to face a challenging market environment in Greater China, mainly related to the continued broad-based covid-19-related restrictions. As a result, currency-neutral revenues in the market declined 35% during the three-months period, in line with previous expectations. Excluding Greater China, currency-neutral revenues in the company’s other markets combined grew 14% in Q2.

Operating profit of € 392 million reflects operating margin of 7.0%
The company’s gross margin declined 1.5 percentage points to 50.3% (2021: 51.8%). Significantly higher supply chain costs and a less favorable market mix due to the significant sales decline in Greater China weighed on the gross margin development. This could only be partly offset by a higher share of full price sales, first price increases and the benefits from currency fluctuations. Other operating expenses were up 19% to € 2.501 billion (2021: € 2.107 billion). As a percentage of sales, other operating expenses increased 3.2 percentage points to 44.7% (2021: 41.5%). Marketing and point-of-sale expenses grew 8% to € 663 million (2021: € 616 million). The company continued to prioritize investments into the launch of new products such as adidas’ new Sportswear collection, the next iteration of its successful Supernova running franchise and first drops related to the Gucci collaboration as well as campaigns around major events like ‘Run for the Oceans.’ As a percentage of sales, marketing and point-of-sale expenses were down 0.3 percentage points to 11.8% (2021: 12.1%). Operating overhead expenses increased by 23% to a level of € 1.838 billion (2021:
€ 1.492 billion). This increase was driven by adidas’ continuous investments into DTC, its digital capabilities and the company’s logistics infrastructure as well as by unfavorable currency fluctuations. As a percentage of sales, operating overhead expenses increased 3.5 percentage points to 32.8% (2021: 29.4%). The company’s operating profit reached a level of € 392 million (2021: € 543 million), resulting in an operating margin of 7.0% (2021: 10.7%).

Net income from continuing operations reaches € 360 million
The company’s net income from continuing operations slightly declined to € 360 million (2021: € 387 million). This result was supported by a one-time tax benefit of more than € 100 million due to the reversal of a prior year provision. Consequently, basic EPS from continuing operations reached € 1.88 (2021: € 1.93) during the quarter.

Currency-neutral revenues on prior year level in the first half of 2022
In the first half of 2022, currency-neutral revenues were flat versus the prior year period. In euro terms, revenues grew 5% to € 10.897 billion in the first six months of 2022 (2021:
€ 10.345 billion). The company’s gross margin declined 1.7 percentage points to 50.1% (2021: 51.8%) during the first half of the year. While price increases as well as positive exchange rate effects benefited the gross margin, these developments were more than offset by the less favorable market mix and significantly higher supply chain costs. Other operating expenses increased to € 4.759 billion (2021: € 4.154 billion) in the first half of the year and were up 3.5 percentage points to 43.7% (2021: 40.2%) as a percentage of sales. adidas generated an operating profit of € 828 million (2021: € 1.248 billion) during the first six months of the year, resulting in an operating margin of 7.6% (2021: 12.1%). Net income from continuing operations reached € 671 million, reflecting a decline of € 219 million compared to the prior year level (2021: € 890 million). Accordingly, basic earnings per share from continuing operations declined to € 3.47 (2021: € 4.52).

Average operating working capital as a percentage of sales slightly decreases
Inventories increased 35% to € 5.483 billion (2021: € 4.054 billion) at June 30, 2022 in anticipation of strong revenue growth during the second half of the year. Longer lead times as well as the challenging market environment in Greater China also contributed to the increase. On a currency-neutral basis, inventories were up 28%. Operating working capital increased 23% to € 5.191 billion (2021: € 4.213 billion). On a currency-neutral basis, operating working capital was up 14%. Average operating working capital as a percentage of sales decreased 0.4 percentage points to 21.0% (2021: 21.4%), reflecting an overproportional increase in accounts payable due to higher sourcing volumes and product costs.

Adjusted net borrowings at € 5.301 billion
Adjusted net borrowings amounted to € 5.301 billion at June 30, 2022, representing a year-over-year increase of € 2.155 billion (June 30, 2021: € 3.146 billion). This development was mainly due to the significant decrease in cash and cash equivalents.

FY 2022 outlook reflects double-digit growth during the second half of the year
On July 26, adidas adjusted its guidance for FY 2022 due to the slower-than-expected recovery in Greater China since the start of the third quarter resulting from continued widespread covid-19-related restrictions. adidas now expects currency-neutral revenues for the total company to grow at a mid- to high-single-digit rate in 2022 (previously: at the lower end of the 11% to 13% range), reflecting a double-digit decline in Greater China (previously: significant decline). While so far the company did not experience a meaningful slowdown in the sell-through of its products or significant cancellations of wholesale orders in any market other than Greater China, the adjusted guidance also accounts for a potential slowdown of consumer spending in those markets during the second half of the year as a result of the more challenging macroeconomic conditions. Therefore, growth in EMEA is now expected to be in the low teens (previously: mid-teens growth), while revenues in Asia-Pacific are projected to grow at a high-single-digit rate (previously: mid-teens growth). Despite the more conservative view on the development of consumer spending in the second half of the year, adidas has increased its forecasts for North America and Latin America reflecting the strong momentum the brand is enjoying in these markets. In North America, currency-neutral revenues are now expected to increase in the high teens. Sales in Latin America are projected to grow between 30% and 40% (both previously: mid- to high-teens growth).   

Due to the less favorable market mix and the impacts from initiatives to clear excess inventories in Greater China until the end of the year, gross margin is now expected to reach a level of around 49.0% (previously: around 50.7%) in 2022. Consequently, the company’s operating margin is now forecast to be around 7.0% (previously: around 9.4%) and net income from continuing operations is expected to reach a level of around € 1.3 billion (previously: at the lower end of the € 1.8 billion to € 1.9 billion range).