Rieter, established in Winterthur in 1795, is a Swiss-based industrial group operating on a global scale. It is a leading supplier of systems solutions and services for the textile, automotive and plastics industries. The company is organized into two divisions, Rieter Textile Systems and Rieter Automotive Systems. In both of these fields the group is a world market leader in the segments covered. 14% of its approx. 13 000 employees work in Switzerland.
Rieter Textile Systems develops and produces machinery, integrated systems and technology components for converting fibers and plastics into yarns, nonwovens and pellets. In partnership with automotive manufacturers, Rieter Automotive Systems develops and produces components, modules and integrated systems on the basis of fibers, plastics and metals in order to provide acoustic comfort and thermal insulation in motor vehicles

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The 2008 financial year for the Rieter Group bore clear traces of the consequences of the global economic downturn. After achieving record figures in the previous year’s more favorable economic climate, Rieter recorded significantly lower orders received, sales, operating result and net result in the year under review. The Rieter Group has to cope with a drop in demand that is unprecedented in its intensity and rapidity. For the first time, both divisions – the textile machinery and the automotive component supply business – are affected simultaneously. Rieter therefore already launched an extensive restructuring program in summer 2008 in order to adjust to the new structural and cyclical conditions prevailing on the market. 

In the textile machinery business a significant slowdown on the world market started in spring 2008, and this continued and intensified in the second half of the year. Rieter’s automotive component supply business was affected by the crisis in the American automobile industry and the slowdown in economic activity in Europe, especially in the second six months. Despite the difficult overall economic conditions, Rieter succeeded in maintaining its market position in both divisions and even expanding it in Latin America. Both Rieter divisions have a global presence and a broad basis in terms of their products and customer relationships. This strategic position had always enabled diverging cyclical influences to be balanced in previous years. In 2008 the economic downturn affected for the first time all important markets of the Rieter Group at the same time. 

Steep, market-related decline in orders received and sales
The adverse effects of market trends resulted in a steep decline in orders received and sales by the Rieter Group. The trend in new orders received was attributable primarily to the drop in order intake at the Textile Systems Division. Consolidated sales declined less steeply (– 20%) than orders received and totaled 3 142.5 million CHF (3 930.1 million CHF in 2007). This was due to the high level of orders in hand for textile machinery with which Rieter started 2008, and a proportionately smaller decline in sales by Automotive Systems. Exchange rate movements had a negative impact on the development in group sales amounting to some three percentage.

Earnings trend depressed by structural and cyclical factors
The Rieter Group’s operating result before interest and taxes was adversely affected by several factors in 2008. While higher raw material and energy costs, upfront inputs for developing new markets and the cost of initial restructuring measures primarily accrued in the first six months, the massive decline in production volumes at both divisions was an additional burden on the earnings trend in the second half of the year. In order to align its operations with the structural and cyclical changes in the market, Rieter launched an extensive restructuring program. This necessitated expenditures totaling 237.7 million CHF, which were charged to the consolidated financial statements for 2008. Before special charges, interest and taxes, the Rieter Group posted an operating result of 22.4 million CHF. As a consequence of these restructuring measures and impairement charges on goodwill of 96.8 million CHF, the operating result before interest and taxes (EBIT) showed a loss of 312.1 million CHF – after a record outcome in the previous year (operating profit of 278.7 million CHF in 2007). 

Extensive action to increase earnings
Rieter has considerable experience in dealing successfully with pronounced market cycles and reacted promptly and rapidly to the downturn. However, in face of the steep, market-related decline in volumes, particularly in the second half of the year, the action taken was only partially able to reduce the volume-related decline in earnings in 2008. These measures are being implemented systematically in both divisions. They include the utilization of flexible working-time models, short-time working at locations in Europe and North America, and a worldwide reduction in employee numbers in order to adjust the workforce to lower order volumes. In addition, Rieter has initiated plant closures and structural adjustments in the USA and in Spain, Germany, Italy and France. At the end of 2008 the Rieter Group employed a workforce of 14 183 worldwide, some 9% less than at the end of the previous year. Rieter also terminated the employment contracts of some 1 500 temporary employees; these jobs are not included in the workforce totals stated above. Rieter therefore already reduced employee numbers by more than 2 800 in 2008, equivalent to some 16% of the total workforce. With its restructuring programs and transfers of manufacturing facilities Rieter is not only responding to the structural changes in both sectors, but is also reacting to the cyclical downturn. The cost-cutting action is being complemented by price discipline and selective increases in product prices in order to compensate for cost inflation. 

Net result
In addition to cyclical effects, the disruptions on the financial markets also exerted a strong influence on the development in net result. Following many years of good performance, Rieter posted negative financial results in the year under review. Together with special charges this resulted in a net loss of 396.7 million CHF (net profit of 211.5 million CHF in 2007).

Dividend canceled
Rieter Holding Ltd. has reported profits and paid substantial dividends to its shareholders by way of participation in the company’s success from its incorporation in 1985 until the 2007 financial year. In light of the difficult earnings situation at both divisions and the subdued outlook for the current year the Board of Directors will propose to the Annual General Meeting of Rieter Holding Ltd. on April 29, 2009, that no dividend should be paid for the 2008 financial year (15.00 CHF in 2007), in the interests of preserving capital. Instead of a dividend this year, shareholders will receive options for purchasing Rieter registered shares. They will be financed by contingent share capital of up to 396‘312 shares – corresponding to max. 9.2% of ordinary share capital. No AGM resolution is required for this shareholder-friendly measure. The Board of Directors will announce the respective conditions (term, strike price) at a later date.