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Interim report 2008

Interim results 2008: net profit TKH Group up 46,4% in 1st half

Net profit TKH Group up 46.4% in 1st half  

  • Increase in turnover 1st half 2008 by 31.2% to € 504.8 million, of which 9.7% organic.

  • High contribution of innovations to turnover (22.4%) is key driver for organic growth.

  • EBITA increases by 68.6% to € 44.1 million.

  • All solutions segments show strong organic profit growth.

  • Strong contribution to profit growth from acquisitions second half 2007.

  • Focus on solutions positively contributes to margin development (ROS).

  

Outlook

  • Expected increase of net profit (before amortisation and before exceptional tax gain 2007) for the financial year 2008 of approximately 30%.

 

 

Key figures first half year

(in € million unless otherwise stated)

 

1st half year 2008

1st half year

2007

Difference

as a %

Turnover

      504.8

         384.8

    +   31.2

EBITA

        44.1

           26.1

    +   68.6

Net result before amortisation 1)

        27.1

           17.4

    +   55.9

Net result

        25.5

           17.4

    +   46.4

Net earnings per ordinary share before amortisation (in € )

 

        0.77

 

           0.51

 

    +   51.0

Net earnings per ordinary share (in € )

        0.72

           0.51

    +   41.2

Solvency

     38.6%

        46.3%

 

ROS

       8.7%

          6.8%

 

 

 

Key ratios second quarter figures

(in € million unless otherwise stated)

 

Q2

2008

Q2

2007

Difference

as a %

Turnover

      249.6

         187.0

    +   33.5

EBITA

        23.9

           13.2

    +    80.8

Net result

        13.9

             9.2

    +   50.3

ROS

       9.6%

          7.1%

 

 

1) Net result before amortisation of intangible non current assets related to acquisitions (after tax).

 


 

Alexander van der Lof, CEO of technology company TKH: “As a solutions provider, TKH has a healthy growth perspective. The transformation to the new segmentation in Solutions gives TKH a sharper focus and makes the company more transparent. With this transformation, the cohesion in activities is structured and organised better. This translates into greater efficiency of the company's solutions proposition. The margin increase to 9.6% during the second quarter confirms TKH Group's potential. The strategy of TKH offers a fair resistance against deteriorating economic circumstances.”

 

 

Financial developments

 

Turnover in the first half of 2008 increased by € 120.0 million (+31.2%) to € 504.8 million (H1 2007: € 384.8 million). Organic growth accounted for 9.7%. Since 30 June 2007 CAE, NET, Pantaflex, SecurityWorks and Keyprocessor were acquired. Acquisitions accounted for 21.5% of the growth in turnover. All three solutions segments (Telecom, Building and Industrial Solutions) contributed to the growth in turnover, of which Building Solutions showed the largest increase. The distribution of turnover based on solutions was as follows: Telecom Solutions 17%, Building Solutions 35% and Industrial Solutions 48%.

 

The gross margin as a percentage of turnover slightly increased from 37.1% to 37.5%. Due to strict cost control and efficiency improvements, the operating costs excluding amortisation increased at a rate of 24,9% which is below turnover increase.

 

Depreciation of € 7.1 million was above the first half 2007 level (H1 2007: € 6.1 million) due to increased investment.

 

The operating result before amortisation and impairment of intangible assets (EBITA) was up 68.6%, to € 44.1 million in the first half of 2008 from € 26.1 million in the first half of 2007. The organic profit growth amounted to 33.1%. All solutions segments contributed significantly to the increase in profit.

 

Amortisation increased to € 3.2 million in the first half of 2008 (H1 2007: € 0.4 million), mainly due to acquisitions during the past 12 months.

 

The financial income and expenses increased from € 1.6 million during the first half 2007 to € 5.4 million in the first half 2008. This increase was largely due to increased bank debt, in combination with a negative currency effect amounting to € 0.7 million. The tax burden slightly decreased to 28.0% (H1 2007: 28.8%).

 

The net result before amortisation in the first half 2008 amounted to € 27.1 million, an increase of 55.9% compared to the comparable period in 2007 (H1 2007: € 17.4 million). Net profit in the first half 2008 amounted to € 25.5 million. This is a 46.4% increase compared with the equivalent period in 2007 (H1 2007: € 17.4 million). Earnings per share came in at € 0.72 (H1 2007: € 0.51) and earnings per share before amortisation amounted to € 0.77 (H1 2007: € 0.51).

 

Net bank debt increased by € 26.3 million compared with the 2007 closing date. This was mainly due to turnover growth and related working capital requirement, as well as investments. As a percentage of turnover, the working capital decreased to 21.5% (H1 2007: 22.9%). The solvency decreased to 38.6% (H1 2007: 46.3%), which was mainly related to the significantly higher financing requirements due to acquisitions. Despite the increased financing need TKH operates well within the financial ratios as agreed in the debt contracts.

 

The number of employees (FTE) as per 30 June 2008 was 3,804 (31 December 2007: 3,577).

 

 

Progress strategy implementation

 

The companies acquired in the past twelve months have made a positive contribution to TKH Group’s strategic development. CAE, a French company, that was acquired during the second half of 2007, provides TKH with a key position in the French market and significantly reinforces TKH’s European position as a whole. The growth of TKH group is further stimulated by its focus on increasing geographic overlap in activities. Access to the total TKH portfolio for all companies in the group and the mutual exchange of knowledge are additional growth drivers. This is particularly clear from the results development during the first half of 2008. As a technology company, it is essential to continuously develop, translating new technologies into new orders. The high proportion of innovation in turnover during the first half year of 2008 of 22.4%, demonstrates TKH Group’s success. The innovations are a key driver for organic growth of TKH group.

 

 

Solutions segmentation

 

From 1 January 2008 onwards, TKH reports in a new structure based on the Telecom, Building and Industrial Solutions segments. The company initiated this new structure in 2003. TKH made solutions a focal point in its strategy and developed into a systems supplier with ICT and electrical technology as the company’s core technologies. TKH adds value to its solutions in the form of engineering, assembly and system integration. Over 70% of components production is outsourced to external parties. This implies that in the past few years, TKH has transformed into a technology company with a very high share of innovations.

The completion of the new reporting structure and implementation of the solutions organisation provided an extra impulse to positioning solutions within the three solutions segments in the first half of 2008. This has ensured further optimisation of profitability per solutions segment and better portfolio management of the segments.

 

 

Developments per solutions segment

 

Telecom Solutions

 

Turnover within the Telecom Solutions segment increased by 18.1%, from € 74.5 million during the first half year of 2007 to € 87.9 million during the first half year of 2008. Of this total, € 12.0 million was achieved by the acquisition CAE. The organic increase in turnover amounted to 2.0%. The market conditions within Europe for both indoor telecom systems and optical fibre networks were excellent, while copper networks showed a decline.

 

The EBITA increased by 47.4%. It went up from € 8.3 million in the first half year of 2007 to € 12.3 million in the first half year of 2008. The operating result was boosted by a larger contribution from deliveries with high added value in the form of systems.

 

The margin (ROS) increased by 11.2% in the first half year of 2007 to 14.0% in the first half year of 2008.

 

Indoor telecom systems

Turnover increased, in particular in France and Germany. The need to further upgrade indoor networks to higher bandwidths had a positive impact on demand for peripheral equipment. In the Netherlands, turnover decreased due to a significant decline in demand for dect-telephones. 

 

Fibre network systems

Turnover increased due to a growing demand for optical fibre. The investment priority for optical fibre networks further increased. The world market for optical fibre increased by approximately 20% during the first half year. Within Europe, various new contracts were achieved, increasing the order book for both active and passive optical fibre systems.

 

Copper network systems

Investments being shifted from copper to optical fibre networks had a negative impact on the growth of turnover in copper network systems.

 

 

Building Solutions

 

Turnover within the Building Solutions segment increased by 46.9% during the first half year, from € 118.2 million to € 173.7 million. The organic increase in turnover amounted to 10.8%, mainly due to the security solutions and the structured data cable systems within building technologies. Furthermore, turnover of connectivity systems showed positive development, whereas the turnover in cables with low added value was downsized. The acquisitions CAE, NET, SecurityWorks and Keyprocessor achieved a combined growth of 36.1% within Building Solutions.

 

In most segments within Building Solutions, market conditions were good, although market growth flattened out during the first half of 2008. In France, market conditions were less favourable than in the rest of Europe, which limited growth in that region.

 

EBITA rose by 108.4%, from € 6.7 million during the first half of 2007 to € 14.1 million during the first half of 2008.  This significant increase was mainly caused by a substantial increase in  activities with high added value, including security solutions and cable systems and the downsizing of activities with a low added value, such as commodity installation cable.

 

The margin (ROS) rose by 5.7% during the first half year of 2007 to 8.1% during the first half year of 2008.

 

Building Technologies

Turnover within building technologies showed positive development. In particular the structured cabling systems segment showed healthy growth. The trend towards higher transmission speeds for data communication systems leads to a strong substitution demand and higher quality requirements relating to the required specifications. Flexible installation and reduction of installation costs led to more complete systems and solutions and TKH Group is well-positioned to accommodate this. Additionally, increased demand for domotics solutions, among others aiming to decrease energy consumption and increase efficiency in the healthcare sector, was a growth driver.

 


 

Security systems

Lending high priority to investment in security solutions allowed for further growth of turnover within this segment. On one hand, investment is driven by the increasing social need for a safer environment and on the other by the need for further increases in efficiency within the safety sector. The acquisitions also contributed to the achieved growth. 

 

Connectivity systems

The increase in turnover within this segment was limited by further decrease of low added value activities, like commodity installation cable. This did, however, substantially improve the margin. It also created more space to switch the present production capacity in this segment to higher value added products.

 

 

Industrial Solutions

 

Turnover within the Industrial Solutions segment rose by 26.6% during the first half year of 2008, from € 192.1 million during H1 2007 to € 243.2 million. The organic growth amounted to 12.0%. Industrial Solutions’ two sub-segments, connectivity systems and manufacturing systems, both contributed to this growth, with manufacturing systems showing the highest growth. Growth on acquisitions was achieved by CAE and Pantaflex.

 

Market conditions were generally favourable within Industrial Solutions. The trend for outsourcing within the industrial sector was a positive factor.

The EBITA rose by 52.2%, from € 14.9 million during the first half of 2007 to € 22.7 million during the first half of 2008.  Manufacturing systems significantly contributed to this result improvement, as the cost level normalised during the first half of 2008, whereas it was very high during the same period in 2007 due to high prototyping costs.

 

The margin (ROS) increased from 7.8% during the first half year of 2007 to 9.3% during the first half year of 2008.

 

Connectivity systems

Turnover in cable systems and specialty cable showed a healthy growth. During the second quarter, production was started in the new plant in Germany (Cottbus). The increase in production capacity responds well to a further increase in the order book within this segment.

 

Manufacturing systems

Order intake achieved an all-time high during the first half year of 2008. In particular the tyre manufacturing systems segment performed well with order intake amounting to over € 100 million during the first half year of 2008. The tyre manufacturing sector attached high priority to efficiency investments, to which TKH could respond with its innovations.

 

 


 

Outlook

 

The market conditions for Telecom Solutions are favourable. Investment priority for optical fibre networks further increases due to strong growth in the need for transmission speed and image quality. In contrast, demand for conventional solutions in telecom networks will further decline.

 

Within Building Solutions, innovations in the field of among other things security solutions and improved installation efficiency represent above-average growth opportunities. In a number of segments, market conditions have deteriorated. However, these developments have a limited impact on the developments within the Building Solutions segment, as most of the activities within the TKH group are positioned in growth segments.

 

Within Industrial Solutions, TKH benefits from the strong tendency to outsource to specialist companies, and the outlook is positive.

 

On balance, TKH expects the net result before amortisation and before the exceptional tax gain in 2007 to rise by approximately 30%, baring unforeseen circumstances. This would take the net result for the financial year of 2008 (after amortisation) up to approximately € 52 million.

  

Haaksbergen, 29 August 2008

 

 

 

Executive Board

 

 

For more information:   J.M.A. (Alexander) van der Lof,

Chairman of the Executive Board

Tel.: (+31)(0)53 573 2901

Website: www.tkhgroup.com

 

For the complete press release including the financials, we refer to the attached PDF document