Marked rise in sales, profit
Rieter achieved a significant increase in sales and profitability in the first half of 2015. Sales rose by six per cent to 553.9 million CHF. As a result, the EBITDA margin amounted to 11.9 per cent and the EBIT margin to 8.3 per cent of sales as compared to 9.3 per cent and 5.5 per cent respectively in the first half of 2014. Net profit rose to 29.1 million CHF or 5.3 per cent of sales as compared to 14.3 million CHF or 2.7 per cent of sales in the first half of 2014.
Since January 1, 2015, Rieter has been conducting its operations in three business groups: Machines & Systems (machinery business), After Sales (spare parts and services) and Components (technology components). The company is thus also taking account in particular of the strategic importance of the after-sales business and improving transparency. With the figures for the first half of 2015, Rieter is reporting results on the basis of this new structure for the first time.
The group posted pleasing growth in sales on the back of its large order backlog at the start of the year. Compared to the same period of the previous year, sales rose by six per cent to 553.9 million CHF (522.1 million CHF in the first half of 2014).
The disproportionately high increase in profitability is especially pleasing: EBITDA rose by 36 per cent to 66 million CHF, corresponding to 11.9 per cent of sales (compared to 9.3 per cent in the first half of 2014). EBIT rose by 60 per cent to 46.1 million CHF; and the EBIT margin increased from 5.5 per cent to 8.3 per cent of sales. This reflects the positive development in the three business groups and the effects of the cost-reduction measures which Rieter implemented as a response to the scrapping of the minimum exchange rate of the euro in January last. The gain on the sale of a property amounting to 5 million CHF also contributed to the satisfying result.
There was an improvement in Rieter’s financial result (-4.7 million CHF compared to -7.3 million CHF in the first half of 2014), and the tax ratio was 29.7 per cent (compared to 33.5 per cent in the first half of 2014). On account of the favorable trend of these two parameters along with the improvement in EBIT, the group’s net result rose significantly to 29.1 million CHF or 5.3 per cent of sales (compared to 14.3 million CHF or 2.7 per cent of sales in the first half of 2014).
Rieter’s capital expenditure in the period under review totalled 7.3 million CHF, a good 40 per cent less than the corresponding figure in the first half of 2014. Research and development spending increased slightly to 22.9 million CHF (compared to 21.5 million CHF in the first half of 2014).
Net working capital increased by 37.5 million CHF in the first half year of 2015, although inventories were reduced. This development is due to an increase in trade receivables and a reduction in trade payables as well as advance payments from customers. Free cash flow amounted to -5.1 million CHF (compared to -2.9 million CHF in the first half of 2014).
After payment of a dividend of 20.6 million CHF (4.50 CHF per share) out of the reserve from capital contributions and the repayment of a bond issue totaling 151.9 million CHF in April 2015, cash and cash equivalents at Rieter amounted to 257.6 million CHF and net liquidity to 139 million CHF as of June 30, 2015. Rieter is soundly financed and has an equity ratio of 42.7 per cent.
The market situation forecast by Rieter at the press conference held in March proved to be true for the first half of 2015. Spinning mills performed at a healthy level in many key markets, and this had a positive effect on order intake and sales for the After Sales and Components business groups. For the Machines & Systems business group, subdued investment demand from customers was clearly apparent. This trend is due to spinning mills’ low margins on the one hand and to global currency turbulence on the other. These developments, however, did not lead to an increase in order cancellations in the period under review.
Asian markets continued to develop at the good level of the previous year during the first half of 2015. Compared to the strong first half of 2014, a significant drop in orders was recorded above all in Turkey, while customers in India continued to invest at a solid level. In China, the market remained subdued.
As expected, order intake (388.3 million CHF) was therefore lower than in the second half of 2014 (490.6 million CHF) and the first half of 2014 (655.5 million CHF). As of June 30, 2015, the order backlog amounted to around 540 million CHF (December 31, 2014: around 730 million CHF).
Rieter employed a workforce of 5,150 as of June 30, 2015, compared to 4,835 a year earlier. The increase is mainly due to the rise in the number of employees in the Czech Republic. The number of additional temporary employees was reduced by Rieter to 871 (or 14.5 per cent of the entire workforce) by the middle of the year, against the backdrop of the lower volume of orders; in comparison, there were 1,265 temporary employees (or 20.7 per cent of the entire workforce) in the first half of 2014.
Business groups
The trend in sales was positive in all three business groups. Machines & Systems was responsible for 71 per cent of sales, and After Sales and Components for 13 per cent and 16 per cent respectively.
Machines & Systems increased sales by four per cent to 392.7 million CHF (compared to 376.1 million CHF of sales in the first half of 2014), and After Sales by 17 per cent to 69.6 million CHF (compared to 59.6 million CHF in the first half of 2014). At Components, sales to third parties grew by six per cent to 91.6 million CHF (compared to 86.4 million CHF in the first half of 2014). Segment sales, i.e., including deliveries to Machines & Systems, dropped slightly to 125.4 million CHF (compared to 130.1 million CHF during the first half of 2014).
At the Machines & Systems Business Group, EBIT rose by 62 per cent to 17.2 million CHF (compared to 10.6 million CHF in the first half of 2014). This corresponds to an EBIT margin of 4.4 per cent of sales (compared to 2.8 per cent in the first half of 2014). After Sales increased EBIT by 60 per cent to 13.6 million CHF or 19.5 per cent of sales (compared to 8.5 million CHF or 14.3 per cent of sales in the first half of 2014). Components increased EBIT by 13 per cent to 16.0 million CHF, and the EBIT margin improved to 12.8 per cent of segment sales (compared to 14.1 million CHF and 10.8 per cent in the first half of 2014).
The demand for technology components was very satisfying. The Components Business Group posted order intake amounting to 97.6 million CHF, up by nine per cent over the first half of 2014 (89.2 million CHF). Orders from India and other Asian countries for the EliTe compact spinning system were pivotal to this increase in demand. Orders received by the Machines & Systems Business Group during the first half of 2015 amounted to 225.5 million CHF (compared to 493.5 million CHF during the first half of 2014), representing a considerable decline. At After Sales, order intake amounted to 65.1 million CHF compared to 72.8 million CHF during the first half of 2014, a drop of 11 per cent. This reduction was principally due to fewer orders for installation services, which itself is linked to the reduced order intake at Machines & Systems.
Priorities for 2015
The company worked intensively during the first half of 2015 on the implementation of the three strategic priorities which it set out in fall last year. The implementation program is known as STEP UP.
The increased expenditure on research and development during the period under review was mainly directed at the completion of important product development projects, which will be presented in November at ITMA 2015 in Milan.
Rieter is in the process of positioning its important, long-established service facilities on the market as an independent business. With a comprehensive range of services covering the entire product life cycle, the company aims to support customers in the operation of their systems and thereby enhance their competitiveness.
Rieter’s after-sales business focuses on the growing global spinning capacities of customers operating its machines and systems. The Machines & Systems Business Group is focusing increasingly on systems expertise and flexibility in response to fluctuations in demand. The Components Business Group also supplies components, spare parts and wearing parts to other textile machinery manufacturers and their customers.
In April 2015, Rieter opened China’s first, and the world’s most state-of-the-art, technology center for short-staple spinning at its Changzhou site. This marks the completion of Rieter’s expansion in China. The spinning center provides services including spinning trials for customers, customer training and technology trials. As a result, Rieter’s technological know-how is now also available to customers in China and the surrounding countries.
Rieter has initiated short-, medium- and long-term measures to further reduce its exposure to the Swiss franc and generally to improve efficiency. A series of measures activated at short notice already had a cost-reducing effect in the first half of 2015, and was thus a contributory factor in increasing profitability. In the coming months, measures aimed at reducing the volume of purchases in Swiss francs and streamlining the production structure in Winterthur will be of primary concern.
In the context of focusing on its core business, Rieter has sold the Schaltag Group, consisting of Schaltag AG (Switzerland) and Schaltag CZ s.r.o. (Czech Republic), to a private Swiss investor group with an industrial background. Schaltag and Rieter will continue to co-operate in the field of switchgear cabinet manufacturing. The parties have agreed not to disclose the purchase price.
Outlook
There was a healthy trend in demand for products and services provided by After Sales and Components in the first six months of the year. By contrast, Machines & Systems’ markets were characterized by spinning mills’ reluctance to invest.
In Rieter’s view, the market situation will remain essentially unchanged in the short term. The company expects sales for the whole of 2015 to be lower than in 2014. Consequently, EBIT and net profit are expected to be lower. Depending on the effective currency scenario, the negative impact on operating profitability is unchanged, estimated in the range of 100 to 200 basis points compared to 2014.
In order to achieve its medium-term targets, Rieter continues to work on the implementation of its strategic priorities of innovation, expansion of the after-sales business and improvement of profitability.