The Rupp Report: Rieter: To Be Fit For The Next Upswing

Some weeks ago, the Rupp Report informed its readers about the 2011 annual financial results of the
Switzerland-based Rieter Group — for the first time without its divested automotive segment (See ”
Rupp Report: Good Results For The Rieter Group
,”, February 7, 2012
). Last week at its annual press
conference, the company revealed more details about the results. In an exclusive interview, the
Rupp Report had the chance to talk to Executive Chairman Erwin Stoller, Rieter Holding Ltd. Board
of Directors, to discuss some of the facts and figures.

Facts And Figures

Just as a reminder, here are some major figures for the year 2011: The received orders
totaled 958.3 million Swiss francs; sales revenues netted 1,060.8 million Swiss francs. The strong
operating result — up 49 percent over 2010 results — was 112.6 million Swiss francs, and the net
profit increased to 119.0 million Swiss francs.

The divided results show that the order intake from the Spun Yarn Systems business group was
775.0 million Swiss francs, and sales reached 861.7 million Swiss francs. Due to the high
production volumes and good capacity utilization, the operating result before interest and taxes at
Spun Yarn Systems rose to 81.2 million Swiss francs in 2011 from 42.4 million Swiss francs in 2010.

The Premium Textile Components business group — with its brands Bräcker, Novibra, Suessen and
Graf — achieved an order intake of 183.3 million Swiss francs. Sales totaled 199.1 million Swiss
francs, and the operating result before interest and taxes grew from 29.6 million Swiss francs in
2010 to 35.1 million Swiss francs in 2011.

Focus On Asia

Already in its first release some weeks ago, Rieter emphasized a much stronger focus on the
Asian markets in general, and on China and India in particular. “We succeeded in ending our long
relationship with the India-based Lakshmi Machine Works. The joint venture with Lakshmi in
Coimbatore hindered us from moving forward,” Stoller said. On top of that, the sales of Lakshmi
shares and the divestment contributed 52.2 million Swiss francs to the free cash flow. “Now we have
the autonomy to move forward with our own sales and service force,” he added. The sales
distribution and development by region shows the potential rather clearly:

Rest of Asia

China as well is included in Rieter’s focus to further invest in Asia markets. Stoller said
the new plant under construction in Changzhou should be ready at the end of the year 2013. “It is
of outstanding importance that we focus our investments in Asia on a very long-term basis. We are
the only manufacturer that can supply full spinning lines with all existing four spinning
technologies, such as traditional ring spinning, rotor, compact and now air-jet spinning. It is no
exaggeration that we consider Rieter to be the global leader in the premium segment for spinning
equipment,” he said.

Attacking The Mid-Market Segment

“On the other hand, the situation in the medium market segment in Asia is quite different:
There is a lot of competition, mainly from regional and local manufacturers, and we didn’t play an
important role in this segment up to now. This will change in the future: For example, our new
Air-Jet J 20 and the Rotor Box S 60 will be produced in Europe for the premium market segment, and
we will produce other machinery in India and China for the mid-market segment. Everybody knows that
there is already a lack of qualified workers in India and China. So they need more equipment with a
certain level of automatization, and China wants to have first-class products anyway,” Stoller
said. He also explained that in some parts of China and India, the machines are stopped for two
days a week due to energy shortages.

And how about the education of the people in the premium market segment to work with this
sophisticated machinery? “Well, this is of great importance for Rieter. That’s why we invest a lot
of energy and money to further educate our staff. We can’t afford to deliver second-best quality;
our job must be 100-percent perfect right from the beginning,” he explained.

Growth Drivers

“We certainly have a great chance to play an important role in the mid-segment too,” Stoller
added. “The growing population and the GDP are strong indicators, as are the increased demand in
fibers and the trend towards an increased yarn quality and fineness. And on top of that, the
replacement of existing installed capacity.” The sales growth figures for the year 2011 demonstrate
the same development:

+ 46
+ 20
+ 78
Rest of Asia
+ 12
– 21
+   4

Stoller further said, “I may also bring up our success in India with machines such as the C
70 card, the G 32 ring-spinning machine, the semi-automatic rotor-spinning machine and the RSB-D 22
draw frame.”

Get Ready For Market Changes

As mentioned before, Rieter wants to stay Number One in the premium segment and, however,
become at least Number Two in the mid-segment. But Stoller mentioned another fact, which is even
more important for the whole group: “We recognized during the last crisis in 2008 and 2009 that we
are well-prepared and we know how to reduce our production output. On the other hand, we have to
learn how to restart and increase productivity. Quite frankly speaking, we have lost orders owing
to the fact that we didn’t have enough capacity and were not prepared to deliver in due time,
mainly for orders from Turkey. We must benefit much more from our global production network and
absorb the volatility of the markets in a smoother and better way. For this, we will invest another
50 million Swiss francs to streamline our production processes to be ready for the next upswing.”

March 27, 2012