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The Rupp Report: Tough Times For The Rieter Group

Jürg Rupp, Executive Editor

The adverse effects of market trends resulted in a steep decline in orders received and sales by the Switzerland-based Rieter Group, mainly as a result of fewer orders at Textile Systems. Consolidated sales declined 20 percent, a less precipitous drop than orders received, and totaled 3,142.5 million Swiss francs, compared with 3,930.1 million Swiss francs in 2007. This was mainly a result of the high level of orders in hand for textile machinery at the beginning of 2008, and a proportionately smaller decline in Automotive Systems sales. Exchange rate movements had a negative impact amounting to some 3 percent.

Structural And Cyclical Factors
The operating result before interest and taxes showed a loss of 312.1 million Swiss francs - after a record 2007 outcome of 278.7 million Swiss francs. At the end of 2008, Rieter's global workforce totaled 14,183, down 9 percent from year-end 2007. Rieter posted negative financial results in 2008, with a net loss of 396.7 million Swiss francs including special charges, compared to a net profit of 211.5 million Swiss francs in 2007.

Textile Systems
The trend of business at Rieter Textile Systems in 2008 was dominated by a cyclical downturn on the global textile machinery market, and, said Rieter CEO Hartmut Reuter, "it is of an intensity and rapidity that had not been experienced by the industry for decades." The division posted an operating loss of 49.5 million Swiss francs for the 2008 fiscal year. Orders totaling 539.5 million Swiss francs were 68-percent lower than in 2007, when they totaled a record 1,703.1 million Swiss francs; this decrease was also partly a result of order postponements.

Sales totaling 1,120.4 million Swiss francs for the year were 28-percent lower than year-earlier sales of 1,566.8 million Swiss francs. However, Rieter claims it is maintaining its leadership in the market segments served by Textile Systems. The operating result before special charges, interest and taxes totaled 41.3 million Swiss francs, representing 4.1 percent of corporate output, compared with 200.7 million Swiss francs or 13.1 percent in 2007.

Automotive Systems
High fuel prices along with cyclical and structural problems in the automobile industry brought on a substantial reduction in vehicle production in North America in the first half of 2008; and by autumn, the downturn also affected European and South American - and to a lesser extent, Asian - manufacturers. Rieter Automotive Systems' 2008 sales totaling 2,022.1 million Swiss francs, compared with 2, 363 million Swiss francs in 2007, were 10-percent lower in local currencies - down 14 percent in nominal terms - as a result.

However, Textile Systems Enjoy Demand...
Rieter Textile Systems continues to see considerable potential for the future in the populous markets of India and China, in which the largest yarn manufacturing capacity worldwide is installed. According to Hartmut Reuter, manufacturing in China and India is significant. A drawframe "Made in China" is available and enjoys good demand. The division is pursuing its strategy of expanding its presence in these regions. The air-jet spinning machine introduced last year is said to have proven its qualities in operations at initial customer mills. This machine can produce good-quality yarns for a wide range of textile end products at much lower cost than with other existing spinning processes, according to Rieter.

...And Automotive Systems Is Not For Sale
Automotive Systems invested in new locations in which major customers are installing manufacturing facilities, such as Eastern Europe and Asia. It worked intensively on further applications of its innovative Rieter Ultra Silent fiber material, with such products meeting several modern automotive engineering requirements including being lighter-weight and recyclable; and, indirectly, leading to carbon dioxide reduction. And, as always in these tough times, there are rumors going around the markets: No, said Rieter, the automotive business unit will not be sold, and this was never taken into consideration.

Despite the difficult overall economic conditions, Rieter succeeded in maintaining its market position in both divisions and even expanding it in Latin America. Both Rieter divisions have a broad basis in terms of their products and customer relationships. The company remained on a good financial foundation at the end of 2008, with an equity ratio of 36 percent, compared with 48 percent in 2007, and low net debt of 37 million Swiss francs, whereas it has a net liquidity of 145 million Swiss francs in 2007. Year-end cash and cash equivalents amounted to 283 million Swiss francs, compared with 258 million Swiss francs in 2007.

Outlook
The year 2009 will be challenging, and not only for Rieter. Cost savings take clear priority. As in the past, Rieter is focusing in a conservative way on its cash flow and equity. The prospects for the automotive and the textile machinery industry are uncertain thanks to the global recession, and the company expects demand will decline in both divisions. Maintaining a sound balance sheet and adequate liquidity are top priorities. In the medium term, Rieter expects increased demand at both Textile Systems and Automotive Systems in line with global trends.

March 31, 2009

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