Rieter reports sharp decline in demand for FY2020

As
a consequence of the COVID-19 pandemic, Rieter closed the 2020 financial year
with sales of CHF 573.0 million, which corresponds to a decrease of 25 per cent
compared to the previous year (2019: CHF 760.0 million). Due to the low sales
volume, a loss of CHF 84.4 million was recorded at the EBIT level while at the
net profit level the loss was CHF 89.8 million. In view of the loss in the 2020
financial year, the Board of Directors proposes that shareholders waive the
payment of a dividend for 2020. Order intake of CHF 640.2 million in the 2020
financial year was 31 per cent down on the previous year (2019: CHF 926.1
million). Following the significant slump in demand in the second quarter of
2020 (CHF 45.7 million), order intake recovered in the third quarter (CHF 174.4
million) and improved further in the fourth quarter (CHF 215.1 million). At the
end of 2020, the company had an order backlog of about CHF 560 million
(December 31, 2019: about CHF 500 million).

EBIT, Net Profit and Free Cash Flow

The
loss at the EBIT level in the 2020 financial year was CHF 84.4 million, which
corresponds to 14.7 per cent of sales. At the net profit level, a loss of CHF
89.8 million was reported, i.e. 15.7 per cent in relation to sales. The loss is
a consequence of the reduced sales of CHF 573.0 million. Through short-time
working compensation, reduced vacation and time credits and salary waivers,
Rieter saved around CHF 12 million in costs in 2020. However, this was far from
sufficient to compensate for the missing sales volume.

Free
cash flow in 2020 was CHF -74.8 million (2019: CHF 42.3 million). Net liquidity
declined to CHF 41.3 million (December 31, 2019: CHF 162.1 million). The equity
ratio as of December 31, 2020, was 36.4 per cent (previous year’s reporting
date: 47.8 per cent).

Sales by region

With
the exception of Turkey and Africa, all regions were affected by the low demand
as a consequence of the COVID-19 pandemic. In Turkey, thanks to the innovative
range of products and services, Rieter benefited from customers’ willingness to
invest in the year under review, increasing sales by 83 per cent to CHF 122.0
million. In the Asian countries (excluding China, India and Turkey), compared
to the previous year sales fell by 37 per cent to CHF 184.8 million, in China
by 32 per cent to CHF 92.8 million, in India by 49 per cent to CHF 50.8
million, in North and South America by 37 per cent to CHF 66.4 million and in Europe
by 7 per cent to CHF 38.4 million. In Africa, with sales of CHF 17.8 million a
year-on-year increase of 11 per cent was recorded.

Business Groups

Sales
of the Business Group Machines & Systems amounted to CHF 295.8 million in
2020, which corresponds to a decrease of 24 per cent compared to the previous
year. Due to the low volume and taking into account the expenditure on the
ongoing innovation program, the business group recorded a loss of CHF 72.4
million at the EBIT level. Order intake in the reporting year was CHF 363.9 million
(-35 per cent compared to the previous year).

The
Business Group Components with sales of CHF 174.3 million (-24 per cent compared
to the previous year) achieved a profit of CHF 1.4 million at the EBIT level
before restructuring charges. EBIT after restructuring charges was CHF -5.5
million. The order intake with CHF 169.1 million (-24 per cent compared to the
previous year) was just below sales.

The
Business Group After Sales achieved sales of CHF 102.9 million (-27 per cent
compared to the previous year) and a positive EBIT of CHF 1.8 million. Order intake
was CHF 107.2 million (-24 per cent compared to the previous year). Over 60 per
cent of spinning mills were shut down in the second quarter of 2020, with a
corresponding impact on the demand for spare parts.

Crisis Management

At
the outbreak of the COVID-19 pandemic in the first quarter of 2020, Rieter put
a comprehensive crisis management programme into effect. Protective measures
for employees were implemented at all Rieter locations worldwide, the
effectiveness of which has been shown in countries badly affected by the
pandemic, such as India and the Czech Republic.

Rieter
made major efforts to avoid or compensate for disruptions in the supply chain
and to ensure service in the field. This allowed the promised deliveries to
take place almost on schedule while customers received largely seamless
support.

To
safeguard the liquidity of the company, Rieter made use of additional credit
lines totalling around CHF 130 million between March and November 2020. In
September 2020, as planned, Rieter repaid the bond issued in 2014 in the amount
of CHF 100 million, and in August 2020 successfully placed a new bond in the
amount of CHF 75 million.

Immediately
after the outbreak of the pandemic, Rieter reacted to the lower capacity utilisation
of its own facilities, which was triggered by the slump in demand. In addition
to reducing vacation and time credits, short-time working was applied for
Financial Year 2020, implemented at the locations in Switzerland and Germany.
At the other Rieter locations, corresponding measures were implemented in
accordance with the legislation of the respective country. In this way, Rieter
retained the ability to benefit from the initiating market recovery.

Strategy Implementation

Despite
the extremely difficult situation, Rieter made further progress in implementing
its corporate strategy in the 2020 financial year: Technology and innovation
leadership, solutions for the installed base and the continuous improvement of
the cost position.

The
current innovation programme marked the launch of the new products, which were
presented at ITMA in Barcelona in summer 2019. Despite the low demand, the
innovations continued to meet with a very positive response from customers,
such as the 83 per cent increase in sales in Turkey, but also the recovery in
incoming orders in the fourth quarter of 2020. Major orders were received for
the new card C 80 and the new comber E 90. Despite the difficulties caused by
the pandemic, more preparations were made for the market launch of further
innovations planned for 2021.

The
Rieter CAMPUS is an important element of Rieter’s innovation strategy. The
decision about the start of the construction work will depend on the business
situation.

The
business with solutions for the installed base of Rieter machines, which the
Business Groups Components and After Sales are driving forward, was also
developed further despite the weak demand due to the COVID-19 pandemic. Thus,
the first major orders were placed by customers for retrofitting Rieter ring
spinning machines with the piecing robot ROBOspin and the compacting solutions
COMPACTdrum and COMPACTeasy.

Rieter’s
cost position was also further improved. The measures announced in January 2020
to adjust capacity at the European locations, which affected a total of 180
positions, were implemented as planned during 2020.

Dividend

Due
to the loss of CHF 89.8 million at the net profit level in the 2020 financial
year, the Board of Directors proposes that shareholders waive the distribution
of a dividend.

Changes to the Group Executive
Committee

Carsten
Liske, Head of the Business Group Machines & Systems and member of the
Group Executive Committee since 2015, left the Group Executive Committee at the
end of February 2021 to take on a new role outside of the Rieter Group. The
Board of Directors thanks Carsten Liske for his many years of successful work
as well as his great contribution to the further development of Rieter and
wishes him every success and all the best for the future, both professionally
and personally.

With
effect from March 1, 2021, the Board of Directors of Rieter Holding Ltd. has
appointed Roger Albrecht as Head of the Business Group Machines & Systems
and a member of the Group Executive Committee. Roger Albrecht is 38 years old
and a Swiss citizen. He has a Bachelor’s degree in Business Administration and
a Master’s degree in Accounting and Finance from the University of St. Gallen.
Roger Albrecht was employed by the Hilti Group in Liechtenstein and Canada from
2008 to 2015.

In
2015 he was appointed to the position of Business Group Controller in the
Business Group Components, and from 2017 to the end of February 2021 he headed
up Spindelfabrik Suessen GmbH in Suessen (Germany) as Managing Director.

Board of Directors and Annual General
Meeting

At
the 129th Annual General Meeting held on April 16, 2020, the shareholders
approved all motions proposed by the Board of Directors. The Chairman of the
Board Bernhard Jucker and the Directors This E. Schneider, Michael Pieper,
Hans-Peter Schwald, Peter Spuhler, Roger Baillod, Carl Illi and Luc Tack were
confirmed for a further one-year term of office. This E. Schneider, Hans-Peter
Schwald and Bernhard Jucker, the members of the Remuneration Committee who were
standing for election, were also each re-elected for a one-year term of office.

Outlook

Rieter
expects the market recovery that began in the second half of 2020 to continue
in 2021. The company expects an order intake in the first half of 2021
exceeding that of the previous half year (second half of 2020: CHF 389.5
million). Thanks to the improved capacity utilization, Rieter is planning
short-time working in only a few areas in the first half of 2021. Nonetheless, as
already announced, Rieter still anticipates that sales in the first half of
2021 will be below the break-even point. In connection with the high order
backlog at the beginning of 2021, Rieter expects an operating profit for the
full year 2021.

Thank You

On
behalf of the Board of Directors and the Group Executive Committee, we wish to
thank all Rieter employees for their great commitment under the very difficult
conditions in financial year 2020, which was characterized by COVID-19. We
thank the employees who undertook business trips during pandemic times and
worked in the field for customers as well as for the salary waiver in favor of
the company. That is not to be taken for granted. Our customers, suppliers and
all business partners who for their part have to overcome major challenges
because of the pandemic deserve a very special thank you for their loyalty to
the Rieter Group. We express our heartfelt thanks to the Rieter shareholders
for their trust and hope to be able to welcome them again in person at the
Annual General Meeting in 2022.