The Rupp Report: Rieter Group Is Gaining Ground
Jürg Rupp, Executive Editor
The Switzerland-based Rieter Group just released its results for the first half of 2014 (H1 2014) and commented on these figures in a telephone conference. Dr. Norbert Klapper, Rieter Group CEO said: "In a favorable market environment, Rieter increased sales and profitability compared to the first semester 2013. The company booked a healthy order intake substantially reaching into 2015. This confirms the strong position of Rieter and its brands.”
The shareholders also will be happy with the progress of the group: One year ago, the share price per unit was 148.80 Swiss francs (US$157.47). At the end of June 2014, the price was 221.70 Swiss francs (US$249.96) — an increase of 66.9 percent.
Indeed, the figures show a positive trend towards better sales results for the Swiss textile machinery manufacturer. The company enjoyed a continuing worldwide positive development of the market environment with regional variations. Rieter is back on track after completion of its 2012-13 investment program.
The order intake netted 655.5 million Swiss francs (US$739.06 million), 20-percent higher than for H2 2013, and the robust order backlog totals some 880 million Swiss francs (US$992.17 milion). Sales increased by 9 percent to 522.1 million Swiss francs (US$588.65 million), driven mainly by Spun Yarn Systems. The largest share of orders came from Turkey, China, India, the United States, Vietnam and other Asian countries. Also, the profitability looks good; it was higher than in H1 2013, with 5.5 percent earnings before interest and taxes (EBIT) margin and a 2.7 percent net-profit margin.
The market environment in China was tight because of high raw material prices and challenging financing conditions. “The market for viscose yarns, where Rieter supplies manufacturers with semi-automatic rotor spinning machines, also remained subdued. On the other hand, demand for ring spinning machines was good,” the company reported, mentioning that spinning mills in facilities located in Vietnam and other Asian countries have made major investments in order to supply the Chinese textile market. “Rieter secured substantial orders in these countries as well as in Turkey and the US.”
In addition, Rieter reported: “In India the market was slightly more dynamic than in the second half of 2013. However, conditions remained challenging, due especially to the currency situation and reluctance to invest ahead of the elections in spring.” (See “The Rupp Report: Will India Recover Now?,” TextileWorld.com, May 20, 2014.)
The net liquidity is a solid 118.6 million Swiss francs (US$133.72 million), and capital expenditure decreased significantly to 12.5 million Swiss francs (US$14.09 million). Investments in R&D reached 21.5 million Swiss francs (US$24.24 million), equal to 4.1 percent of sales. “This demonstrates the continued focus on innovation,” Rieter reported (See Table 1).
Table 1: Rieter Group Financial Results
|Million Swiss Francs||H1 2014||H2 2013||H1 2013||FY 2013|
|EBITDA||48.4||60.9||34.3 (1)||95.2 (1)|
|EBIT||28.8||43.1||17.1 (1)||60.2 (1)|
|EBIT margin (of sales)||5.5%||7.7%||3.6%||5.8%|
|Capex (capital expenditure)||12.5||28.5||26.5 (2)||55.0 (2)|
|Free cash flow||-2.9||73.2||-12.1||61.1|
(2) Incl. investments for strategic projects of 21.2 million CHF (FY 2013: 35.7 million CHF)
The business units Spun Yarn Systems (SYS) and Premium Textile Components (PTC) showed increases of 11 percent and 1 percent, respectively. The PTC segment sales including sales to SYS increased by 4 percent to 130.1 million Swiss francs (US$146.68 million).
Sales By Region
All areas showed increased sales with the exception of China, Africa and Europe. The most significant increases were in Turkey and the Americas. Rieter reports that “the sales decrease in China compared to the same period of the previous year stems from weaker demand in the second semester 2013.” (See Table 2.)
Table 2: Rieter Group Regional Sales Development
|Region||H1 2014||H1 2013||% Change|
|Other Asian Countries||141||126||+12|
The EBIT increased by 68 percent to 28.8 million Swiss francs (US$32.47 million) in H1 2014; and the EBITDA increased to 48.4 million Swiss francs (US$54.57 million), or 9.3 percent of sales. Profitability in both business groups rose compared to H1 2013. EBIT for SYS was at 4.5 percent of sales compared to 3.4 percent in H1 2013; and for PTC, at 10.8 percent of segment sales compared to 7.6 percent in H1 2013.
Rieter reports that the financial result of -7.3 million Swiss francs (-US$8.23 million) “comprises mainly interest costs. The tax rate was at 33 percent compared to 50 percent in the previous year. However, earnings per share increased to 3.12 Swiss francs.
Looking forward, Rieter reports: “Based on the current order backlog [of 880 million Swiss francs] — of which a substantial share already reaches into 2015 — full year sales for 2014 are expected to show at least high single digit growth compared to 2013. Operational profitability (EBIT) in 2014 will be positively impacted by volume growth, whereas additional costs of 10 million Swiss francs for conclusions of the IT-assisted processes project, low airjet capacity utilization and lower order backlog margins than in the second semester 2013 are expected to have an adverse impact also in the second half of 2014. All in all, Rieter expects for the year 2014 a higher operating result (EBIT) than in 2013.”
The targets for the cycle are precisely defined: a sales growth of some 5 percent; an EBIT margin of 9 percent over the cycle; a net result of 6 percent over the cycle and 8 percent in peak years; and a return on assets of 14 percent in peak years.
As stated in Rieter’s H1 2014 report, “With broadly based business worldwide, Rieter expects for the second half of 2014 a stable market demand on slightly lower levels than in the strong first semester.” Klapper expressed confidence for a prosperous 2014. However, “demand depends among other factors on the development of yarn and raw materials prices, currency exchange rates, financing costs, and global consumer sentiment.”
July 29, 2014