Expansion in China and India pays off
With a heritage that is unparalleled, Rieter has been a trusted name in the global textile industry for 218 years. And as the world’s leading manufacturer of products for spinning processes, Rieter is taking another step forward with its investment program.
This investment program pursues three goals: drive expansion in Asia, launch product solutions that are innovative and customer-oriented, and optimize business processes. That’s Rieter’s response to changing markets and customer behavior patterns: to change with the times and set new standards that continue to shape the world of textiles.
Rieter is expanding its presence in the growing markets of Asia by investing in local capacities in China and India. In doing so, it is responding to a growing need for textiles and the demand for uncompromising quality. It is also deepening its understanding of local markets while gaining significant ground in the dynamic, aspiring markets of Asia.
Investments
Although the substantial investment program announced early in 2012 placed challenging demands on those involved, the overall program implementation is now going ahead and financially well on course. By 2012 end Rieter had taken the following important steps:
Rieter made rapid progress with capacity expansion in its two key markets of China and India. In Changzhou, China, it upgraded the existing plant and completed the first construction phase of a large second plant. This was inaugurated in June and is now fully operational. Both plants are at a high level of operational excellence for which Rieter strives worldwide.
In India, Rieter created additional capacity with an existing plant rebuild and a new plant building in Koregaon Bhima, Pune. The plant in Wing was optimized and has likewise made good progress in operational excellence. The expansion plan is scheduled for completion per year-end 2013.
Rieter worked intensively on innovations in 2012 and launched new machines and technology components to improve yarn quality, increase productivity and enhance energy efficiency. Selective and controlled market launch of the J 20 airjet spinning machine went ahead, and a customer in China commissioned the first complete line of J 20 airjet spinning machines. Well received by customers were, among others, the E 80 comber and a wide range of new Bräcker, Graf, Novibra and Suessen brand technology components.
Rieter was also well on course with process improvement investment priorities per year end 2012. Apart from the projects for global standardization and IT support of business processes, Rieter made good progress with organizational realignment to a global working approach, in particular with regard also to manufacturing.
By concentrating assembly work at the Winterthur location in Switzerland, and with projects in Germany and the Czech Republic, the group pushed forward operational excellence in Europe as well.
The expansion of Rieter locations in China and India will be completed by the end of 2013, as earlier announced. The projects for improving global processes are likewise well advanced. With completion of the 2012/2013 investment program and in order to improve the ability to respond to the market cycles typical in this industry, Rieter aims again to lower the break-even threshold in both business groups.
2012 performance
The Rieter Group held its own in 2012 against difficult market conditions worldwide. Order intake for the year as a whole declined by 12% to 839.7 million CHF ($883.43 million), although the group received more orders in the second half-year than in the first. As expected, sales totalling 888.5 million CHF ($931.62 million) were 16 per cent lower than in 2011. Mainly due to lower sales and also the 2012-2013 investment program announced in spring 2012, the operating result (EBIT) declined to 33.6 million CHF or 3.8 per cent of sales (2011: 10.6 per cent at 112.6 million CHF). Net profit was 26.5 million CHF or three per cent of sales (2011: 11.2 per cent at 119 million CHF).
The business year 2012 was beset by uncertainties in all major economic regions worldwide. Textile machinery and component suppliers were faced with additional industry- and country-specific challenges in their main markets of China and India.
Spinning mills in India were still affected during the first half of 2012 with the consequences of raw materials price distortions, but during the second half-year, demand started improving, particularly in northern India. In China the spinning mills suffered as a result of government regulated raw material prices.
Overall, Rieter’s spinning mill customers recorded a more stable trend of business in the second half of 2012 and operated profitably. The business environment in Rieter’s yarn customer markets remained volatile, however, and the banks upheld their caution with regard to project financing.
It was clearly apparent in 2012 that in this unfavorable environment, Rieter is well positioned with the existing product range and is heading in the right direction with its innovation and expansion strategy focused on Asia. Today the company is considerably better off with market-specific products than during the economic slump of 2008-09.
Rieter strengthened its overall market position in 2012. In the major markets of China and India, machinery and components offering higher productivity and quality, with lower energy consumption and with a higher degree of automation, are in greater demand than ever.
Orders received and sale
Order intake by the Rieter Group in the year under review declined by 12 per cent to 839.7 million CHF. This was also due to cancellations of orders totalling about 60 million CHF. The second half-year nevertheless brought 435.6 million CHF order intake, eight per cent higher than in the first half of the year. The main reason for this positive development was market revival in India and a slightly increased demand in Turkey, in the South-East Asian countries, and in North and South America. In China, Rieter attained a good level of order intake despite a more challenging environment. During this period several large orders for machine deliveries in the 2013 financial year were also received.
Both business groups recorded lower order intake, but the decline was less pronounced with Spun Yarn Systems (machinery business) than with Premium Textile Components (components supply business). Rieter orders on hand per year-end totalled around 550 million CHF.
Net profit for the year under review amounted to 26.5 million CHF or three per cent of sales (2011: 11.2 per cent of sales at 119 million CHF, of which 47.3 million CHF from reduction of Rieter’s equity interest in Lakshmi Machine Works). This includes gains of 17.6 million CHF from sale of the residual equity interest in Lakshmi Machine Works and Lakshmi Ring Travellers.
Expertise in textile value chain
Ongoing innovations in components and machines are crucial to Rieter’s long-term success. Together with its recognized expertise in the textile value chain and the ability to manufacture high-precision components in volume, innovations secure Rieter’s strong competitive position globally. The company is well placed to uphold and extend its technological and innovation lead in the years to come.
Rieter has a global customer base and presence, and covers all four final spinning technologies as well as the relevant spinning preparation. It is therefore able to optimize the spinning process as a whole.
Outlook
Rieter business activities are broadly based worldwide. Heterogeneous market development is expected for 2013. Market development depends amongst other factors also on currency exchange rate developments, consumer sentiment in Europe and North America, fiber consumption growth in Asia, and raw material prices. The slight improvement in market conditions in the second semester of 2012 continued in the first two months of 2013.
Full-year sales for this financial year are expected to reach at least a similar level as in 2012. As a result, operating profit (EBIT) is expected around 2012 levels before disposal gains. This includes strategic project costs from the investment program 2012-2013 of about 20-25 million CHF.
Operating profitability in the first semester 2013 is expected to be lower due to less attractive inherent margins in the current order backlog. Rieter expects a slightly positive net profit in 2013. Investment activity from the finalization of the investment program 2012-2013 will lead to capital expenditure of around 35-40 million CHF on top of ongoing replacement demand.
Rieter expects that global demand for short staple fibers (natural fibers / staple man-made fibers) will grow by an average of 2.3 per cent annually until 2030. The additional spinning capacity this will require, there placement demand and the trend toward greater automation, especially in the Chinese and Indian markets, will have a positive impact on demand for spinning machinery and components.
Against this background Rieter is aiming for overall annual average growth of fiver per cent, half of which should be organic. Rieter’s strategic targets are to retain its leadership in the premium segment and also to expand its position in the local markets in China and India. In the implementation, Rieter is focusing on expansion in Asia: Further build-up of capacity in China and India.
The company is planning to increase focus on air-jet spinning, improvement of yarn quality, productivity and energy efficiency of machinery and components. Rieter will also focus on operational excellence, global standardization and IT support of business processes.
The company plans investments totalling around 140 million CHF in 2012-2013 for rapid expansion in Asia, product innovations, and the further improvement of global processes. In 2012, 51.6 million CHF were invested, and another 25.3 million CHF impacted the result as strategic project costs (2.8 per cent of sales). These investments were in addition to the regular investments for replacements.
Through this investment program, Rieter is seeking to achieve an EBIT margin of at least nine per cent over the demand cycles and greater than 12 per cent in peak years.