16.08.2005 - Challenging market environment for Rieter
Semi-Annual Report 2005 (English/PDF/128 KB)
The dominant features of the first six months of 2005 for the Rieter Group were the low inclination to invest on the part of spinning mills and continued weakness in economic activity in the automotive industry’s traditional main markets. As already reported, Rieter therefore recorded lower sales and earnings in the first half of 2005.
Orders received declined by 7% to 1 544.2 million CHF. Group sales of 1 539.3 million CHF were 5% lower than in the strong first half of 2004. While the automotive supply business succeeded in maintaining the previous year’s level of sales in local currencies, the trend in the textile machinery business was adversely affected by the uncertainties arising after WTO textile quota arrangements were discontinued.
The operating result before interest and taxes (EBIT) amounted to 80.2 million CHF (104.3 million CHF in 2004) or 5.3% of corporate output (6.6% in 2004). The earnings improvement at Automotive Systems was not sufficient to compensate for the volume-related decline in earnings at Textile Systems. The Rieter Group posted improved financial results. Net profit amounted to 54.9 million CHF (67.7 million CHF in 2004), which is equivalent to 3.6% of corporate output (4.3% in 2004). Earnings per share were 12.02 CHF, compared with 15.07 CHF in the first half of 2004.
The increase in the number of employees to 13 990 (13 520 in 2004) was due primarily to the integration of the components manufacturer Suessen with its locations in Germany and India, and to the expansion of activities in China.
In the first half of 2005 Rieter completed the takeover of Suessen and also acquired the shares that it did not already own in US automotive supplier Magee Rieter Automotive Systems. Suessen, which specializes in components for ring and rotor spinning machines, was fully consolidated as of January 1, 2005, and is an important element in Rieter’s strategy of further expansion in the component business. Rieter is also reinforcing its position in the strategically important Asian markets by integrating Suessen’s manufacturing facility in India. By acquiring the entire capital of Magee, Rieter will further expand the automotive supply business in North America and also increasingly supply integrated acoustic systems with carpets to Japanese customers in the US.
Rieter continues to have a sound financial basis: its equity ratio is 46.0% (46.1% on December 31, 2004), net liquidity amounts to 67.2 million CHF (217.5 million CHF on December 31, 2004), and cash flow of 118.9 million CHF was generated in the first six months (135.0 million CHF in the same period of 2004). The decline in net liquidity in the first half of 2005 was due to the dividend payment to shareholders of Rieter Holding Ltd., the purchase of the remaining shares in Magee Rieter and Suessen, and a seasonal increase in working capital.
Rieter Textile Systems: market slowdown in Asia
China made very heavy investments in textile industry expansion ahead of the new WTO quota arrangements that came into effect at the beginning of 2005. This was reflected in the steep rise in exports of Chinese textiles to North America and Europe at the start of 2005. As a consequence, the US and the EU contemplated reintroducing quotas, which caused once again uncertainty among Chinese spinning mill operators.
The market for staple fiber machinery was especially subdued in the final spinning machine segment. In the man-made fiber sector, market trends suffered additionally from the negative impact of higher crude oil prices. The component business developed much more consistently than the cyclical machinery business.
Orders received by Textile Systems in the first half of 2005 totaled 511.1 million CHF, compared with 619.4 million CHF in the strong first half of 2004. Compared with the second half of 2004, order intake improved – also due to the first-time inclusion of Suessen – by 8%, but less strongly than was still being expected at the beginning of the year. New order intake increased momentum toward the end of the first half of 2005, but at a lower level than in the previous year. Most orders came from four Asian countries: Turkey, India, China and Pakistan, although Rieter recorded substantially lower orders received in China and Pakistan compared with the previous year. Rieter registered significant growth in orders received in India, Bangladesh and South Korea.
Increased deliveries to other countries were also unable to offset the slowdown in sales in some Asian markets, especially China. Sales in the first six months of 2005 were 13% lower at 506.2 million CHF, with Asia accounting for 58% of the total (70% in the same period of the previous year). Reduced volumes and an unfavorable product mix were reflected in a lower operating result before interest and taxes (EBIT). The Textile Systems Division is vigorously engaged in flexibly adjusting capacity to the level of orders in hand and further reducing structural costs. It recorded an EBIT of 30.1 million CHF (58.1 million CHF in 2004) or 6.0% of corporate output (10.2% in 2004) in a difficult business environment.
Rieter is convinced of the potential of the Asian textile machinery market despite the current slowdown, and is continuing its expansion in China and India as planned. For example, since acquiring Suessen Rieter has been progressively expanding its production capacities in India and in the second half of the year can therefore increasingly supply cost-optimized products from there and from the manufacturing location in China, which has also been expanded. The expansion of the nonwovens business is making progress. Rieter has concluded several sales of Spunbond and Spunlace lines, some of which will already be reflected in sales revenues in the second half of 2005.
Uncertainty among our customers regarding the further development of the textile markets and quota arrangements is only slowly being dispelled. The increase in orders received in the first half of 2005 compared with the second half of 2004 will have a positive impact on sales and EBIT in the second half of 2005, but will not be sufficient to make up for the shortfall compared with the previous year by year-end.
Rieter Automotive Systems: earnings improvement with level of sales maintained
Global automobile production increased slightly (+1.4%) in the first six months of 2005 compared with the previous year. The trend was weaker in North America and Western Europe, the markets of greatest importance for Rieter: vehicle output was 2.7% lower in North America and 2.4% lower in Western Europe, whereas the trend was positive in Asia. The difficult overall market environment, with rising raw material costs and vehicle manufacturers with partly considerable excess capacity and severe competition with heavy price discounting, also exerted increasing pressure on the component supply industry.
In this environment Rieter Automotive recorded sales of 1 025.5 million CHF (1 032.7 million CHF in 2004). Sales expressed in local currencies amounted to 1 034.5 million CHF, slightly higher than the previous year’s figure. Contrary to the general trend, Rieter reported higher sales in North America; sales in Europe were lower than in the same period of the previous year. Rieter grew in North America due to its strong position with Japanese manufacturers and a good product portfolio. In Europe, Automotive Systems was temporarily affected by model changes in high-volume vehicles by certain manufacturers and a substantial decline in output in Southern Europe.
The Automotive Systems Division’s operating result before interest and taxes (EBIT) in the first six months of 2005 increased by some 5% to 52.6 million CHF despite the unfavorable trend in the cost of materials and the sustained pressure imposed on prices by customers. This EBIT is equivalent to 5.2% of corporate output, after 5.0% in the previous year. Rieter will continue in future – together with customers – to seek solutions to offset higher raw material prices and economize on raw materials through innovation, as well as achieving further productivity gains.
In North America the integration of US carpet manufacturer Magee Rieter is making good progress. Rieter will expand its capacity in Southern China according to plan in the course of this year. Expansion in Eastern Europe is also being pursued with a further plant in Poland. Action has been initiated in the Western European plants to improve their cost position further. All these projects will result in higher capital spending in the months to come.
Rieter expects automobile production in its main markets to remain constant in the second half of 2005. At unchanged exchange rates, Rieter currently foresees Automotive Systems’ sales at the previous year’s level and an improvement in the operating result compared with 2004.
Rieter does not expect any significant positive economic stimulus for the textile machinery and automotive supply markets in the second half of the year. If exchange rates remain within the current range and there is no material deterioration in financial markets, Rieter expects sales in the second half of 2005 to be almost on the same level than in the first six months and a disproportionately greater improvement in earnings.
Contact for the media:Peter Grädel
T +41 (0)52 208 70 12
F +41 (0)52 208 72 73
Contact for financial analysts:Urs Leinhäuser
Chief Financial Officer
T +41 (0)52 208 79 55
F +41 (0)52 208 70 60