In the first half of 2006 the Rieter Group made further progress in developing its presence in the emerging markets in Asia and Eastern Europe. Projects aimed at expanding operations in these sales regions and exploiting cost benefits were successfully implemented by both divisions. In the first six months Rieter vigorously continued to adjust production capacity to the new competitive situation and will pursue this process further in the second half of the year.

– Orders received by Textile Systems almost doubled
– Higher sales and operating result at both divisions

The good trend of business in the second half of 2005 continued in the first six months of the current year, especially in the textile machinery business, but also in the automotive component supply sector. Orders received were 36% higher at 2 094.1 million CHF (1 544.2 million CHF in 2005). This was due mainly to a 91% increase at Textile Systems. Excluding acquisitions and currency effects, the increase on group level amounted to 30%. Group sales rose by 16% to 1 771.6 million CHF (1 525.6 million CHF in 2005). This was mainly attributable to the very good trend of business at Textile Systems, good organic growth at Automotive Systems, the firsttime consolidation of the Graf Group (+ 3%) and positive currency effects (+ 3%).

Rieter reported a sharp increase of 46% in the operating result before interest and taxes to 116.8 million CHF (80.2 million CHF in 2005), equivalent to 6.7% of corporate output (5.3% in 2005). Operating margins improved at both divisions. Results were adversely affected by the higher cost of energy and materials, unsatisfactory earnings in the manmade fiber sector at Textile Systems and restructuring costs of 11.5 million CHF (2.5 million CHF in 2005). 
 
 
Rieter’s net profit rose to 82.1 million CHF (54.9 million CHF in 2005), equivalent to 4.7% of corporate output (3.7% in 2005). Higher operating earnings and a lower tax rate were the main contributors to this positive outcome. Earnings per share increased by 57% to 18.82 CHF (12.02 CHF in 2005).

Rieter’s financial basis remains sound: the equity ratio on June 30, 2006, was 45.4% (46.0% on June 30, 2005) and net liquidity amounted to minus 25.5 million CHF (67.2 million CHF in 2005). Cash flow of 138.8 million CHF was generated in the first half (118.9 million CHF in the same period of 2005). The decline in net liquidity since June 30, 2005 was due to the acquisition of the Graf Group in the second half of 2005, the purchase of the remaining shares in Rieter Saifa in Spain and Unikeller India, investments to exploit growth opportunities and cost benefits, and a sales-related, seasonal increase in working capital in the first half of 2006.

Rieter’s workforce totaled 14 914 on June 30, 2006 (13 990 on June 30, 2005). The increase was primarily due to acquisitions and also to the expansion of production capacity in low-cost countries in Eastern Europe, Asia and South America.

Outlook
Rieter will exploit growth opportunities in the emerging Asian and Eastern European markets and systematically undertake the structural adjustments this necessitates. Due mainly to the very good order situation at Textile Systems, Rieter expects significant sales growth and a further improvement in operating profitability in the 2006 financial year. 
 
Rieter Textile Systems:
operating result more than doubled
The textile industry’s geographical shift to Asia and the simultaneous modernization of production capacities in that region is continuing undiminished. Rieter will increasingly develop products for specific markets and manufacture them locally in order to reinforce its position in those segments that have been served primarily by local suppliers to date.

The Textile Systems division can look back on a very good first half. The uncertainties in the global textile machinery market in connection with the discontinuation of WTO textile quota regulations have subsided and given way to a phase of rapid modernization in the staple fiber machinery sector. The market for staple fiber machinery recorded strong demand, especially in India. Rieter registered many more orders there in the first half than in the same period of the previous year. Demand from China also increased again, but sales there are still below Rieter’s earlier peaks. The Graf Group, wholly owned by Rieter since October 2005, has substantially reinforced Rieter’s position in the components business and fulfilled expectations in the first half of 2006 in terms of orders received, sales and earnings.

Orders received by Textile Systems in the first six months increased by 91% to 974.2 million CHF (511.1 million CHF in 2005); excluding acquisitions and currency effects, the increase amounted to 80%. Alongside India, the major markets were Turkey, China, Pakistan, South Korea and Bangladesh. In the staple fiber machinery sector there was good demand for spinning preparation products and also for the various final spinning processes, with Rieter’s expertise as a systems supplier and innovation leader once again taking effect. A further market revival was also apparent in the components business and in nonwovens machinery. The market for manmade fiber machinery showed initial signs of revival. Nevertheless, sales in the first six months were subdued.
 
 The good order situation resulted in higher capacity utilization in the first half of the year, and delivery lead times tended to lengthen. Sales in the first six months therefore did not rise as steeply as order intake; they increased by 30% to 651.7 million CHF (499.8 million CHF in 2005); the increase excluding acquisitions and currency effects amounted to 20%. The operating result before interest and taxes (EBIT) at Textile Systems doubled to 62.0 million CHF (30.1 Mio. CHF in 2005) and the operating margin increased to the very good level of 9.7% of corporate output (6.0% in 2005). The unsatisfactory earnings in the manmade fiber machinery business had a negative impact.

Rieter will systematically expand its presence in Asia, especially in China and India, in order to benefit from the geographical shift in the textile value chain. At the same time capacity and structures at existing locations will be adjusted to the new competitive situation.

On the basis of the high level of orders on hand and its flexible cost structure, Rieter Textile Systems expects to achieve significantly higher sales and operating earnings for the year as a whole.