Rieter’s sales in Asia up 38%
In the Asian countries (excluding China, India and Turkey), Rieter increased sales in the reporting year by 36 per cent to CHF 433.9 million, of which Uzbekistan made a significant contribution of CHF 144.1 million.
A weak market environment in the second half of the year, a trend that became even more evident in the fourth quarter of 2018, led to an overall decrease in order intake of 17 per cent in financial year 2018. Group sales increased by 11 per cent. The EBIT margin was 4 per cent. Rieter achieved a free cash flow of CHF 63.6 million and as a result was able to increase its net liquidity to CHF 150.2 million. The Board of Directors proposes to the shareholders the distribution of an unchanged dividend of CHF 5.00 per share.
In financial year 2018, Rieter recorded an order intake of CHF 868.8 million, which was 17 per cent down on the same period of the previous year (2017: CHF 1,051.5 million). This development is attributable to the decline in order intake in the second half of 2018 and, in particular, to the significant slowdown in the fourth quarter of 2018. At the end of 2018, Rieter’s order backlog amounted to around CHF 325 million (December 31, 2017: around CHF 540 million).
In 2018, Group sales were CHF 1 075.2 million (2017: CHF 965.6 million), which corresponds to an increase of 11 per cent over the previous year. Rieter achieved increased sales thanks to organic growth in the Business Group Machines & Systems. SSM Textile Machinery in the Business Group Components also supported this positive development. Rieter’s market share was around 30 per cent.
EBIT margin, net profit & free cash flow
Rieter recorded an EBIT margin (before restructuring charges) of 4.0 per cent or CHF 42.9 million (2017: 5.4 per cent or CHF 51.8 million). The lower profitability is mainly attributable to a disadvantageous product mix in the Business Group Machines and Systems as well as one-time costs in connection with the establishment of the central logistics facility in Europe in the Business Group After Sales. Research and development expenditure in 2018 increased to CHF 51.9 million (2017: CHF 49.2 million).
Net profit rose to CHF 32.0 million (3.0 per cent of sales) and was thus significantly higher than in the previous year (2017: CHF 13.3 million or 1.4 per cent of sales). Higher net profit, a reduction in net working capital and a disciplined investment policy led to a free cash flow of CHF 63.6 million (2017: CHF -1.1 million). Net liquidity rose to CHF 150.2 million (December 31, 2017: CHF 130.5 million). The equity ratio as of December 31, 2018, was 44.6 per cent (prior year balance sheet date: 43.6 per cent). Sales by regions In the Asian countries (excluding China, India and Turkey), Rieter increased sales in the reporting year by 36 per cent to CHF 433.9 million, of which Uzbekistan made a significant contribution of CHF 144.1 million. In 2018, sales in China fell by 19 per cent to CHF 148.6 million. With the phasing out of the subsidy program in the western province of Xinjiang, the demand for machinery declined. Sales in India fell by 16 per cent to CHF 146.2 million. In Turkey, Rieter achieved sales of CHF 154.8 million (+55 per cent) in a difficult market environment, thanks to the introduction of the new ring and compact-spinning machines. Sales in North and South America amounted to CHF 108.6 million (-5 per cent). In the Europe region, Rieter increased sales by 3 per cent to CHF 47.3 million. Sales in the Africa region were CHF 35.8 million (+29 per cent).
In 2018, the Business Group Machines & Systems increased its sales by 14 per cent to CHF 669.3 million (2017: CHF 589.5 million). Machines & Systems posted an EBIT (before restructuring charges) of CHF -8.3 million (2017: CHF 0.8 million). The decline in profitability was due in particular to the less favorable product mix compared to the previous year. Order intake fell by 30 per cent to CHF 468.3 million (2017: CHF 668.2 million). Demand in the new machinery business was characterized by uncertainties in Asia and Turkey as well as the tense financing situation for emerging market customers.
The Business Group Components increased sales by 14 per cent to CHF 262.3 million (2017: CHF 229.8 million). SSM Textile Machinery made a significant contribution to this with sales of CHF 84.5 million. At CHF 32.5 million, Components generated a higher EBIT compared to the previous year (2017: CHF 30.8 million). Order intake of CHF 260.1 million (2017: CHF 228.5 million) was 14 per cent up on the previous year, with SSM Textile Machinery also contributing significantly to this positive development.
With sales of CHF 143.6 million (2017: CHF 146.3 million), the Business Group After Sales recorded a slight decline of 2 per cent. After Sales posted an EBIT (before restructuring charges) of CHF 20.4 million (2017: CHF 27.9 million). In addition to the one-time costs for the centralization of logistics in Europe, the weakening of demand towards the end of the year also resulted in a lower EBIT compared with the previous year. Order intake fell by 9 per cent to CHF 140.4 million (2017: CHF 154.8 million). This development is mainly attributable to the lower order volume in the new machinery business at Machines & Systems, as this led to lower demand for installation services in the Business Group After Sales.
Boosting innovative capability
Rieter continued to drive innovation in financial year 2018. At ITMA Asia 2018, as part of the digitisation strategy, the IoT platform Rieter Essential for spinning mills was presented for the first time. In addition, Rieter introduced new ring spinning and compact-spinning machines as well as a new double-head autoleveler draw frame to the market. The Business Groups After Sales and Components also showcased new developments.
To strengthen the ring spinning system, in December 2018 Rieter completed the acquisition of 25 percent of Electro-Jet S.L. The joint development of innovative products is also planned within the scope of the strategic partnership. Rieter will present further innovations at ITMA Barcelona 2019.
Lowering break-even point
The relocation of production from Ingolstadt (Germany) to Ústí nad Orlicí (Czech Republic) was completed as scheduled at the end of the 2018 financial year. This will lead to a significant cost reduction in 2019.
The Rieter Group is selling its real estate in Ingolstadt (Germany). Rieter anticipates completing the transaction during the third quarter of 2019. On completion, Rieter expects an extraordinary contribution to profit after tax of around EUR 60 million. The employees remaining in Ingolstadt will move into a new building in 2021. There, Rieter will create a modern working environment for innovative research and development work and the respective support functions.
In Winterthur, Rieter is planning a modern location, concentrating customer center, product and technology development as well as administration on an area of approximately 30 000 square meters: the Rieter Campus. Rieter’s Board of Directors has decided to have a detailed draft prepared for the project. The Rieter Campus will make an important contribution to the successful further advancement of the company. The decision regarding realization is expected to be made in the second half of 2019.
Changes to Group Executive Committee
Jan Siebert, member of the Group Executive Committee since 2016 and responsible for the Business Group Machines & Systems, left the Group Executive Committee at the end of September 2018. Norbert Klapper, Rieter Group CEO, assumed responsibility for the business group on an interim basis.
The weak market environment also led to low demand in the first two months of 2019. Rieter therefore expects a significant decline in sales, EBIT and net profit for both the first half of the year and the 2019 financial year (before an extraordinary profit contribution from the sale of the real estate in Ingolstadt). Against this background, Rieter is working on the implementation of capacity adjustment and cost reduction measures. These measures include a reduction of the global workforce of around 5 per cent.
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 both spinning preparation processes and all four end spinning processes currently established on the market. Furthermore, Rieter is a leader in the field of precision winding machines. With 16 manufacturing locations in 10 countries, the company employs a global workforce of some 5,150, about 20 per cent of whom are based in Switzerland.