All business groups fare very well
Rieter’s sales increased to CHF 515.3 million in the first half of 2018, up by 24% compared to the previous year period (first half year 2017: CHF 415.2 million). This increase resulted from the organic growth of the Business Groups Machines & Systems and After Sales and the acquisitive growth of the Business Group Components.
Order intake at Rieter in the first half of 2018 amounted to CHF 511.8 million, representing an increase of 3% compared to the previous year period. It had an order backlog of around CHF 540 million, similar to that at the 2017 year end.
As already announced in March last, despite higher sales in the first half of 2018, Rieter achieved a lower EBIT margin. While earnings in the Business Group Components developed positively, the Business Group Machines & Systems posted a decline in profitability.
The EBIT margin was 2.7% with EBIT of CHF 14.1 million (first half year 2017: 3.9% with EBIT of CHF 16.0 million).
As expected, net profit of CHF 10.9 million (2.1% of sales) matched that of the first half of 2017 (CHF 10.9 million or 2.6% of sales). Free cash flow amounted to CHF -59.7 million due to the seasonal increase in net working capital. The net liquidity amounted to CHF 47.2 million as of June 30, 2018. The equity ratio as of June 30, 2018, was 43.1% (prior year balance sheet date: 43.8%).
Rieter achieved a strong increase in sales of 80% to CHF 200.1 million in the Asian countries, not including China, India and Turkey. In particular, Uzbekistan, Bangladesh, Vietnam and Indonesia developed positively. At CHF 82.6 million, a good level of sales was achieved in China, despite a slight decline of 1%.
With the phasing out of the subsidy program in the western province of Xinjiang, demand for machinery declined. In India, sales fell by 36% to CHF 60.2 million, while demand for machinery improved significantly. In the first half of 2018, sales in Turkey increased by 19% to CHF 58.3 million. However, the positive momentum in order intake weakened again towards the end of the reporting period. Orders in the US and Brazil led to sales of CHF 59.6 million in the North and South America region, an increase of 39%.
Business Groups
The Business Group Machines & Systems achieved sales growth of 19% to CHF 303.9 million in the first half of the year (first half year 2017: CHF 255.1 million).
The EBIT of the Business Group Machines & Systems of CHF -14.8 million was lower than in the previous year period, despite higher sales (first half year 2017: CHF -3.8 million), predominantly because of the unfavorable product mix. The order intake of CHF 297.7 million was 8% below the previous year’s level (first half year 2017: CHF 325.2 million).
The Business Group Components, including the acquisition of SSM Textile Machinery, increased sales to CHF 137.3 million (first half year 2017: CHF 90.0 million). This represents an increase of 53% (excluding SSM: 4%). At CHF 19.2 million (first half year 2017: CHF 12.6 million), the EBIT of the Business Group was around 52% (excluding SSM: 37%) higher than the previous year period. The Business Group benefited from better plant utilization and cost reduction measures. Order intake of CHF 139.1 million (first half year 2017: CHF 92.3 million) was around 51% above the previous year period (excluding SSM: +1%).
The Business Group After Sales increased sales by 6% to CHF 74.1 million (first half year 2017: CHF 70.1 million). One-time project costs for the centralization of European logistics led to a decline in EBIT to CHF 11.2 million (first half year 2017: CHF 12.8 million). The centralization of logistics will lead to a significant reduction in delivery times for critical spare parts. Order intake amounted to CHF 75.0 million (first half year 2017: CHF 77.7 million). After Sales began marketing “UPtime” in the reporting period. UPtime digitizes the maintenance of the spinning mill. The offer met with a good customer response and the first orders were received.
On July 18, Rieter signed a contract to acquire 25 per cent of Electro-Jet S.L., thus strengthening the ring spinning system. The company, based in Gurb (Spain), generated annual sales of around EUR 25 million in 2017 and employs around 135 people. Through this investment, Rieter secures a long-term competitive solution in the field of flyers (roving frames). The joint development of innovative products is also planned as part of the strategic partnership.
Details of strategy implementation
Rieter continues to aim for an EBIT margin of 10%, with sales of around CHF 1.3 billion and a return on net assets (RONA) of 14%. To achieve this goal, Rieter concretizes the implementation of the strategy as follows:
- Improve the market position in the machinery and systems business by accelerating the ongoing innovation program.
- Substantially lower the break-even point of the Business Group Machines & Systems. To this end, in addition to the planned shift of production from Ingolstadt (Germany) to Ústí nad Orlicí (the Czech Republic), further measures are underway.
- Increase profitability of the components business by accelerating the current innovation program and optimizing the cost base.
- Further organic growth in the aftersales business above sales of CHF 166 million, by increasing the market share on the installed base of Rieter machines and implementing innovative digitization solutions.
Rieter increased spending on research and development in the first half of 2018 to CHF 26.6 million (first half year 2017: CHF 22.8 million).
Outlook
In some markets, Rieter customers are faced with rising interest rates, strong currency fluctuations, commodity price volatility and political uncertainties. Overall, this could lead to a slowdown in demand for new machinery in the coming months. In the components and aftersales business, Rieter expects stable demand.
Thanks to the order backlog at the end of June 2018, Rieter anticipates a stronger second semester in both sales and operating profit (EBIT) compared to the first half of 2018. For 2018 as a whole, Rieter expects sales to be above the level of 2017, while EBIT (before restructuring charges) is expected to be below the previous year’s level.
Realignment of locations
Rieter is working in a future-oriented way to optimize its locations and properties. The project to redesign the Winterthur location is proceeding according to plan. The detailed concept for the new building at the Winterthur location will be finalized in the second half of 2018 and submitted to the Board of Directors for decision.
Changes in the Group Executive Committee
Joris Gröflin, CFO at the Rieter Group since 2011, is to leave the Group Executive Committee in March 2019 to pursue a career opportunity outside the Rieter Group.
The Board of Directors wishes to express its gratitude to Joris Gröflin in advance for his many years of valuable service and his major contribution to the further development of Rieter. Details about succession arrangements will be provided in due course.
Jan Siebert, member of the Group Executive Committee since 2016 and responsible for the Business Group Machines & Systems, is to leave the Group Executive Committee with effect from September-end.
The Board of Directors wishes to thank Jan Siebert for his work in connection with the transformation of the Business Group. Responsibility for the Business Group Machines & Systems is to be taken over until further notice by Norbert Klapper, CEO of the Rieter Group, with effect from October 1 next.