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Report | September 2018

Rieter's sales increase in first half of 2018

Rieter achieved a strong increase in sales of 80 per cent to CHF 200.1 million in the Asian countries (not including China, India and Turkey).

Rieter’s sales increased to CHF 515.3 million in the first half of 2018, an increase of 24 per cent compared to the previous year period (first half year 2017: CHF 415.2 million). This increase resulted from the organic growth of the Business Groups Machines & Systems and After Sales and the acquisitive growth of the Business Group Components.

Order intake at Rieter in the first half of 2018 amounted to CHF 511.8 million. This represents an increase of 3 per cent compared to the previous year period. At the end of the first half of 2018, Rieter had an order backlog of around CHF 540 million – similar to that at the 2017 year end.

EBIT margin, net profit & free cash flow
As already announced in March 2018, despite higher sales in the first half of 2018, Rieter achieved a lower EBIT margin. While earnings in the Business Group Components developed positively, the Business Group Machines & Systems posted a decline in profitability.

The EBIT margin was 2.7 per cent with EBIT of CHF 14.1 million (first half year 2017: 3.9 per cent with EBIT of CHF 16.0 million). As expected, net profit of CHF 10.9 million (2.1 per cent of sales) matched that of the first half of 2017 (CHF 10.9 million or 2.6 per cent of sales). Free cash flow amounted to CHF -59.7 million due to the seasonal increase in net working capital. The net liquidity amounted to CHF 47.2 million as of June 30, 2018. The equity ratio as of June 30, 2018, was 43.1 per cent (prior year balance sheet date: 43.8 per cent).

Rieter achieved a strong increase in sales of 80 per cent to CHF 200.1 million in the Asian countries (not including China, India and Turkey). In particular, Uzbekistan, Bangladesh, Vietnam and Indonesia developed positively. At CHF 82.6 million, a good level of sales was achieved in China, despite a slight decline of 1 per cent. With the phasing out of the subsidy programme in the western province of Xinjiang, the demand for machinery declined. In India, sales fell by 36 per cent to CHF 60.2 million – while demand for machinery improved significantly. In the first half of 2018, sales in Turkey increased by 19 per cent to CHF 58.3 million. However, the positive momentum in order intake weakened again towards the end of the reporting period. Orders in the USA and Brazil led to sales of CHF 59.6 million in the North and South America region, an increase of 39 per cent. The Business Group Machines & Systems achieved sales growth of 19 per cent to CHF 303.9 million in the first half of the year (first half year 2017: CHF 255.1 million).

The EBIT of the Business Group Machines & Systems of CHF -14.8 million was lower than in the previous year period, despite higher sales (first half year 2017: CHF -3.8 million), predominantly because of the unfavourable product mix. The order intake of CHF 297.7 million was 8 per cent below the previous year’s level (first half year 2017: CHF 325.2 million).

The Business Group Components, including the acquisition of SSM Textile Machinery, increased sales to CHF 137.3 million (first half year 2017: CHF 90 million). This represents an increase of 53 per cent (excluding SSM: 4 per cent). At CHF 19.2 million (first half year 2017: CHF 12.6 million), the EBIT of the Business Group was around 52 per cent (excluding SSM: 37 per cent) higher than the previous year period. The Business Group benefited from better plant utilisation and cost reduction measures. Order intake of CHF 139.1 million (first half year 2017: CHF 92.3 million) was around 51 per cent above the previous year period (excluding SSM: +1 per cent).

The Business Group After Sales increased sales by 6 per cent to CHF 74.1 million (first half year 2017: CHF 70.1 million). One-time project costs for the centralisation of European logistics led to a decline in EBIT to CHF 11.2 million (first half year 2017: CHF 12.8 million). The centralisation of logistics will lead to a significant reduction in delivery times for critical spare parts. Order intake amounted to CHF 75 million (first half year 2017: CHF 77.7 million). After Sales began marketing UPtime in the reporting period. UPtime digitises the maintenance of the spinning mill. The offer met with a good customer response and the first orders were received.

Rieter strengthens ring spinning system
On July 18, 2018, Rieter signed a contract to acquire 25 per cent of Electro-Jet S.L., thus strengthening the ring spinning system. The company, based in Gurb (Spain), generated annual sales of around EUR 25 million in 2017 and employs around 135 people. Through this investment, Rieter secures a long-term competitive solution in the field of flyers (roving frames). The joint development of innovative products is also planned as part of the strategic partnership. The transaction is subject to the approval of the antitrust authorities.

Details on strategy implementation
Rieter continues to aim for an EBIT margin of 10 per cent, with sales of around CHF 1.3 billion and a Return On Net Assets (RONA) of 14 per cent. To achieve this goal, Rieter concretises the implementation of the strategy as follows:

  • Improve the market position in the machinery and systems business by accelerating the ongoing innovation programme.
  • Substantially lower the break-even point of the Business Group Machines & Systems. To this end, in addition to the planned shift of production from Ingolstadt (Germany) to Ústí nad Orlicí (Czech Republic), further measures are underway.
  • Increase profitability of the components business by accelerating the current innovation programme and optimising the cost base.
  • Further organic growth in the after sales business above sales of CHF 166 million, by increasing market share on the installed base of Rieter machines and implementing innovative digitisation solutions.
  • Rieter increased spending on research and development in the first half of 2018 to CHF 26.6 million (first half year 2017: CHF 22.8 million).

    Realignment of Locations
    Rieter is working in a future-oriented way to optimise its locations and properties. The project to redesign the Winterthur location is proceeding according to plan.

    The detailed concept for the new building at the Winterthur location will be finalised in the second half of 2018 and submitted to the Board of Directors for decision. In China, thanks to the optimisation of production space, a property was sold in the reporting period.

    Changes in the Group Executive Committee
    Joris Gröflin, CFO at Rieter Group since 2011, is to leave the Group Executive Committee in March 2019 to pursue a career opportunity outside the Rieter Group. The Board of Directors wishes to express its gratitude to Joris Gröflin in advance for his many years of valuable service and his major contribution to the further development of Rieter. Details about succession arrangements shall be provided in due course.

    Jan Siebert, member of the Group Executive Committee since 2016 and responsible for the Business Group Machines & Systems, is to leave the Group Executive Committee with effect from the end of September 2018. The Board of Directors wishes to thank Jan Siebert for his work in connection with the transformation of the Business Group.

    Responsibility for the Business Group Machines & Systems is to be taken over until further notice by Norbert Klapper, CEO of the Rieter Group, with effect from October 1, 2018.

    Outlook
    In some markets, Rieter customers are faced with rising interest rates, strong currency fluctuations, commodity price volatility and political uncertainties. Overall, this could lead to a slowdown in demand for new machinery in the coming months. In the components and after sales business, Rieter expects stable demand. Thanks to the order backlog at the end of June 2018, Rieter anticipates a stronger second semester in both sales and operating profit (EBIT) compared to the first half of 2018. For 2018 as a whole, Rieter expects sales to be above the level of 2017, while EBIT (before restructuring charges) is expected to be below the previous year’s level.

    Rieter is the world’s leading supplier of systems for short-staple fibre spinning. Based in Winterthur (Switzerland), the company develops and manufactures machinery, systems and components used to convert natural and manmade fibres and their blends into yarns. Rieter is the only supplier worldwide to cover spinning preparation processes as well as all four end spinning processes currently established on the market. Furthermore, Rieter is a leader in the field of precision winding machines. With 17 manufacturing locations in 10 countries, the company employs a global workforce of some 5,250, about 20 per cent of whom are based in Switzerland.

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