Rieter Textile Systems: market revival in H2 of 2009

March 23, 2010 (Switzerland)

The impact of the economic and financial crisis was a dominant feature of the 2009 financial year for the Rieter Group. The unfavorable market conditions had an adverse influence on the trend of business at both divisions, and resulted in a substantial net loss. Despite a drastic slump in sales in the past two financial years totaling 1 973.8 million CHF – equivalent to some 50% – Rieter successfully ­defended its strong market position in the textile machinery and automotive supply businesses.

The difficult overall conditions subjected the group as a whole to a severe test. Rieter faced it successfully thanks to the strenuous efforts of management and personnel as well as thanks to the confidence of the shareholders. By focusing at an early stage on bolstering equity capital and managing liquidity, Rieter had a strong balance sheet with a sound equity ratio and positive net liquidity at year-end.

New orders received and sales by the group fell steeply in the year under review, but a slight recovery in the markets became apparent in the second half of the year. Rieter believes that activity in both sectors in which the group operates bottomed out before mid-2009. In the year under review Rieter made progress with the sustained improvement of its cost structure through restructuring and also took advantage of numerous opportunities for short-term cost economies. These measures in conjunction with improved capacity utilization due to higher volumes enabled the Rieter Group in the second semester to significantly reduce losses at operating and group level in the second half of 2009 compared to the first six months.

Investments in innovations and market development were reviewed against the backdrop of customers’ restraint and prioritized to enable the projects of greatest strategic importance to be implemented nevertheless. With a strong market position and attractive products Rieter is thus well placed to benefit from the next upswing.

Due to the unfavorable market environment, which affected the first half in particular, orders received by the Rieter Group in the 2009 financial year as a whole were 24% lower at 1 935.1 million CHF. Order intake in the second six months was 9% higher than in the same period of the previous year and 30% higher than in the first half of 2009. This positive trend was attributable to a significant increase in orders received by both divisions. Over the year as a whole group sales fell more steeply than orders received. They were 38% lower (35% lower in local currencies) at 1 956.3 million CHF. In the second half of 2009 this figure was 21% lower than in the same period of the previous year and 17% higher than in the first half of 2009.

Rieter had already initiated extensive programs to cut costs and realign structures and processes in both divisions in summer 2008. Rieter continued these efforts with top priority in the year under review. Employee costs and operating expenses in particular were reduced substantially, thus the first successes in lowering the break-even point have become apparent. Initial positive effects of these programs in conjunction with strict cost discipline became apparent in the second half of 2009: after an operating result before special charges amounting to -136.5 million CHF was posted in the first half of 2009, this figure improved in the second half to -50.1 million CHF. For the year as a whole the operating result before interest and taxes (EBIT) amounted to -186.6 million CHF (+ 22.4 million CHF before special charges in 2008).

The progress made at both divisions in stemming losses and improving the cost structure in the second half of the year proves the effectiveness of the restructuring efforts. The operating losses at Textile Systems and Automotive Systems were more than halved in the second half of the year compared to the first.

In particular, the cost-cutting and restructuring programs also included various measures in the personnel sector. In order to adjust capacities to the lower order volumes Rieter utilized flexible working-time models, introduced short-time working at numerous facilities in Europe and reduced personnel capacity. A large number of managers and employees worldwide also deserve thanks for voluntarily waiving wage and salary entitlements in various forms.

At the end of 2009 the Rieter Group’s worldwide workforce totaled 12 761 employees, a reduction of some 1 400 employees compared with a year earlier. In order to adjust ­capacity to the steep decline in demand Rieter has reduced the number of positions for permanent ­employees by a total of 2 700 and for temporary employees by some 1 000 since the end of 2007. The transfer of manufacturing operations to lower-cost countries has continued.

Rieter thus aims to exploit the cost advantages of these locations and also to get closer to customers operating in those markets, primarily in China and India. The buildup of permanent employee numbers in the second half of 2009 took place in the growth markets or – due to firmer sales – at Rieter Automotive in North America, where our subsidiaries adjusted very flexibly to the changes in market conditions.

In the period between 2007 and 2009 the compensation of the Board of Directors and the Group Executive Committee was reduced by some 50%, corresponding to total savings of 3 million CHF.

The net result amounted to -217.5 million CHF (-396.7 million CHF in 2008). Compared to the first half of 2009 the net loss halved in the second six months. This was mainly attributable to the ­reduced operating loss.

At the 2009 Annual General Meeting shareholders approved the proposal by the Board of Directors that no dividend should be paid for the 2008 financial year in the interests of preserving the capital of the Rieter Group. Instead of a dividend payment, options were allocated to shareholders on May 5, 2008, enabling them to purchase Rieter shares on attractive terms.

The issue of shareholder’s options reinforced Rieter’s capital base with an inflow of 46.7 million CHF. Since the group is reporting a loss for the year under review, the Board of Directors will propose to the Annual General Meeting on April 28, 2010, that no dividend should be paid for 2009.

The world market for textile machinery featured a steep downturn from spring 2008 until mid-2009. Demand declined because government stimulus programs to expand spinning capacity in large textile-producing countries expired and at the same time consumption of textiles in major sales markets such as the US and Europe contracted for economic reasons.  Source fiber2fashion.com

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