Strategically repositioned with positive trend in profitability
In 2015 Rieter recorded a higher profit margin and free cash flow despite lower volume. Order intake totalled CHF 801.6 million (CHF 1,146.1 million in 2014) and was six per cent higher in the second half of the year than in the first six months owing to more positive momentum in the latter period.
In comparison to 2014, the After Sales and Components business groups posted a significant increase in sales, while sales were down at the Machines & Systems Business Group. With overall sales at CHF 1,036.8 million (CHF 1,153.4 million in 2014), EBITDA amounted to CHF 115.9 million (CHF 125.4 million) and the EBITDA margin rose from 10.9 per cent to 11.2 per cent of sales. At 7 per cent of sales, the EBIT margin was only slightly lower than in the previous year (7.3 per cent) with EBIT amounting to CHF 73.1 million (CHF 84.6 million).
The net profit margin developed favorably, rising from 4.6 per cent to 4.8 per cent of sales, with net profit totalling CHF 49.8 million (CHF 52.9 million). The Board of Directors proposes a dividend distribution of CHF 4.50 per share for the 2015 financial year, the same as for the prior year.
The positive trend in profitability indicates that the company is strategically well positioned. 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). With the year-end figures for 2015, Rieter is for the first time reporting results for a full financial year on the basis of this new structure.
The strategic STEP UP improvement program was implemented systematically in 2015. The aim of this program has been to enhance Rieter’s innovative drive, expand its after-sales business and to increase the company’s profitability. Rieter succeeded in implementing all of the steps scheduled for the period and also pushed ahead with measures planned for the Winterthur site in order to further reduce its exposure to the Swiss franc. The fact that Rieter was able to increase profitability slightly in 2015, even though the demand for staple fiber machinery in key markets was subdued and the abandonment of the minimum exchange rate for the euro by the Swiss National Bank posed additional challenges, supports the strategic approach and the effectiveness of the measures taken.
Rieter worked intensively during the 2015 financial year with the implementation of all three strategic priorities of the STEP UP program, further boosting innovative capabilities, expanding its aftersales business and increasing its profitability.
* Boosting innovative capability: Rieter launched innovations for all the four spinning processes established on the market in the year under review and also presented them at ITMA 2015. Customers responded very favorably to the new products and also to the organizational realignment into three business groups (Machines & Systems, After Sales and Components) which enables Rieter to meet the various market requirements in a more systematic manner.
* Expanding the after-sales business: Rieter positioned its important, long-established service facilities on the market as an independent business during the year under review. The After Sales Business Group supports customers in operating their manufacturing facilities with a comprehensive range of services covering the entire product life cycle. This optimizes utilization of spinning mills and thus enhances their competitiveness. This portfolio of services has quickly gained market acceptance. For the first time the After Sales Business Group presented its own range of services and products at ITMA 2015 trade fair. The business group is aiming to grow by more than 30 per cent overall in the next three years, based on sales amounting to CHF 127.5 million in 2014. With sales increasing to CHF 139.8 million for the 2015 financial year, the business group developed according to plan.
In April 2015, Rieter opened China’s first technology center for short-staple fiber spinning in Changzhou. The spinning center is the most modern in the world and draws on its leading expertise to provide services, including on-site spinning trials, customer training and technology trials for customers both in China and in the surrounding markets.
* Increasing profitability: In fall 2014 Rieter set out its mid-term financial targets within the framework of the STEP UP program of achieving an EBIT margin (operating profitability) of 10 per cent and a return on net assets (RONA) of 14 per cent.
One priority set by Rieter in the year under review concerned preparations for the streamlining of manufacturing operations at the Winterthur site. Following the shift of the spinning industry to Asia, Rieter had established state-of-the-art production facilities in China and India in recent years. Rieter is now in a position to supply products of the highest level of quality from all sites of its global manufacturing network.
The sudden appreciation of the Swiss franc in January 2015 brought further changes in the business environment for Rieter. As a consequence, the company decided to streamline production in Winterthur and reduce the volume of purchases denominated in Swiss francs. Rieter will concentrate on the assembly of machinery in Winterthur. Correspondingly, the workforce there will be reduced by around 150 employees. The consultation procedure has in the meantime been completed.
The reduction in the workforce will in part be realized with early retirements and through workforce fluctuation, while for the unavoidable layoffs Rieter has a social plan in place. The implementation of the structural measures at the Winterthur site should yield cost savings of CHF 15-20 million from 2017 onwards.
The Schaltag Group, comprising Schaltag, AG Switzerland and Schaltag CZ s.r.o., Czech Republic, was also sold in July to a private Swiss investment group with an industrial background in the context of the STEP UP program. The activities of Schaltag were not part of the core business of Rieter.
At the end of 2015, Rieter’s order backlog amounted to approximately CHF 470 million (approximately CHF 730 million on December 31, 2014).
In 2015 Rieter again achieved the best sales results in Asian countries (not including China, India and Turkey), with an increase of 19 per cent compared to the prior year. In contrast, however, the propensity to invest declined in these countries.
The market situation in China has eased slightly as a result of a government investment program being implemented in the province of Xinjiang. Sales amounted to CHF 139.8 million, 20 per cent down on the prior year, while order intake was up on 2014 and above the level of sales.
The Indian market was stable in 2015, and Rieter’s sales were 9 per cent (13 per cent in local currency) higher at CHF 142.0 million. Order intake remained at the same level as in the prior year.
In Turkey, Rieter’s sales for the reporting year amounted to CHF 143.7 million. Order intake was at a very low level, but the first signs of recovery were seen towards the end of the year.
Sales of CHF 200.6 million in North and South America in 2015 were at the same level as in the preceding year. Order intake was lower than in 2014 due to the more difficult economic situation in South America and the completion of the major investment projects in the US.
Sales in Africa at CHF 26.7 million were below the previous year’s level, while the reduced sales figure of CHF 60.2 million in Europe was mainly attributable to the sale of the Schaltag Group.
Rieter employed a workforce of 5,077 on December 31, 2015, compared to 5,004 a year earlier. There were also 650 temporary employees, making up 11.3 per cent of the entire workforce (1,221 temporary employees, or 19.6 per cent of entire workforce, on December 31, 2014). The rise in the number of permanent employees occurred mainly in the Czech Republic and China.
Rieter Holding Ltd. posted a net profit of CHF 25.0 million for the 2015 financial year (CHF 22.8 million in 2014). At the Annual General Meeting on April 6, 2016, the Board of Directors will propose that a dividend of CHF 4.50 per share be paid for the 2015 financial year, the same as for the prior year. This corresponds to a payout ratio of 41 per cent of earnings per share (39 per cent in 2014). Rieter’s dividend policy is to pay out at least 40 per cent of net profit.
Outlook
The improvement in market demand for spinning machines since late 2015 has continued in the first two months of 2016. Due to the more positive order intake momentum in the Machines & Systems business group in combination with a good development in the After Sales and Components business groups, Rieter expects a stronger second semester both in sales and profitability. For the full year 2016, it currently envisages sales and net profit below 2015 levels.
Rieter will continue to focus on implementing its programs on innovation, growing the aftersales business and profitability improvement in order to reach its mid-term targets.