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Rieter Reports Substantial Downturn In Machinery Demand

The combination of a cyclical business downturn with sharp increases in energy, raw material and transportation prices had a negative impact on Switzerland-based Rieter Group’s financial performance in terms of reduced profits for the first half of 2008. Both the textile and automotive business suffered the effects, although to different degrees, and the company has announced it will initiate new restructuring measures, in addition to some implemented previously, to mitigate those effects.

Rieter Textile Systems received orders totaling 417.3 million Swiss francs in the first six months of 2008, representing a 61-percent decline from order totals for the same period in 2007. Sales totaled 664.7 million Swiss francs, compared with 706.2 million Swiss francs in the year-earlier period. Postponement by customers of delivery of orders in response to a challenging economic situation contributed to lower volumes for the period. An operating result of 55.4 million Swiss francs for first-half 2008, compared with 93.7 million Swiss francs a year earlier, included a 2.6 million-Swiss franc profit on the sale of Rieter’s pelletizing machinery business. Increased transportation and energy costs reduced the result by approximately 15 million Swiss francs.

Actions taken by Rieter Textile Systems in the first half of the year to respond to the downturn included termination of temporary employees, a recruitment halt, overtime reductions, early retirement and short-time working at certain production facilities; and price increases to mitigate increased raw-material, energy and transportation costs. However, the company is continuing to expand production capacity in India and China, although more slowly than previously in response to current market trends.

The company anticipates that textile machinery investments will not turn around before 2009 and expects sales will drop by approximately 20 percent and operating margins will decline significantly in the current six-month period compared with the first half of the year. Capacity adjustments and other actions have been initiated. Rieter also will speed up a shift in both businesses from its traditional manufacturing bases to emerging regions, reducing its workforce, primarily in Western Europe and North America, possibly by 15 percent. The restructuring in those two regions is expected to cost the company approximately 225 million Swiss francs.

August 19, 2008

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