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Half year results 2014: TKH books sharp rise in profit

Highlights second quarter 2014

  • Turnover rises by 13.5% to € 342.7 million, almost entirely organic.
  • Turnover growth driven primarily by Industrial Solutions (+27.8%).
  • Order intake Industrial Solutions stays at high level.
  • EBITA up by 42.5%, driven mainly by Industrial Solutions.
  • Efficiency programmes 2013 contribute to results improvement at Building Solutions.
  • Significant improvement of ROS to 9.8%.
  • Net profit before amortisation up by 68.4%, due in part to lower tax burden and lower financial expenses.

 

Highlights first half 2014

  • Turnover rises by 11.9% to € 657.1 million, organic rise 12.8%.
  • Gross margin increases to 41.8% from 40.9% thanks to improved product mix.
  • EBITA up by 41.0% due to organic turnover growth, strongly improved efficiency and effective cost control.

 

Outlook

  • Outlook for the full year 2014: a net profit before amortisation and one-off income and expenses attributable to shareholders of between € 75 and € 82 million (2013: € 55.9 million).

 

Key figures second quarter

(in mln. € unless otherwise stated)

 

Q2

2014

Q2

2013

Change

in %

Turnover

 342.7

  301,9

    +13.5

EBITA

  33.6

   23.5

    +42.5

Net profit before amortisation and one off income and expenses attributable to shareholders 1)

   21.5

    12.8

    +68.4

Net profit

   20.0

    11.4

    +75.3

ROS

 9.8%

  7.8%

 

1)  Net profit before amortisation of intangible fixed assets related to acquisitions (after tax).

 

 

Key figures first half

(in mln. € unless otherwise stated)

 

H1

 2014

H1

 2013

Change

in %

Turnover

  657.1

  587.1

  +11.9

EBITA

   60.2 

   42.7

  +41.0

Net profit before amortisation and one off income and expenses attributable to shareholders 1)

   37.1

   22.9

  +62.2

Net profit

   33.5

   19.4

  +73.3

Net earnings per ordinary share attributable to shareholders (in €)

   0.83

   0.46

 + 80.4

Solvency

     40.8%

     40.6%

 

ROS

       9.2%

       7.3%

 

ROCE

     17.5%

     15.9%

 

1)   Net profit before amortisation of intangible fixed assets related to acquisitions (after tax).

 

Alexander van der Lof, CEO of technology company TKH: "The strong improvement in profit and the continued increase in order intake in the second quarter confirm that TKH is in an excellent strategic position. Our customers are taking a noticeable interest in the innovations within our four core technologies. The connection of TKH’s core technologies and our proposition as one-stop shop for those combined technologies in particular puts TKH in a unique position. The demand from clients for complete systems is fully in line with TKH’s vertical market approach. We offer our clients distinctive technologies that make those clients more secure and more efficient. The high level of organic growth we have realised proves that we are a strong international player with excellent prospects for continued organic growth that will be driven primarily by the vertical growth markets we have identified. We also expect profit in the second half of the year to exceed the figure for the first half”.

 

Financial developments in the second quarter

 

Turnover rose almost entirely organic, by 13.5% to € 342.7 million in the second quarter (Q2 2013: € 301.9 million). The strongest rise in turnover was seen at Industrial Solutions, where turnover came in 27.8% higher. The biggest rise in turnover was in the segment tyre manufacturing systems, due to the strong increase in order intake noted since the second half of 2012. The order intake was again at a high level in the second quarter of this year. Turnover at Building Solutions came in 2.8% higher, acquisitions in this segment lifted turnover by 1.2%. However, turnover at Telecom Solutions fell by 0.9% due to falling demand in the segment copper network systems.

TKH’s gross margin improved to 41.8% in the second quarter of 2014, compared with 40.6% in the second quarter of 2013, thanks to a better product mix.

Operating costs as a percentage of turnover fell to 32.1% in the second quarter of 2014, from 32.8% in the second quarter of 2013. The operating result before amortisation of intangible assets (EBITA) rose by 42.5% to € 33.6 million in the second quarter of 2014, from € 23.5 million in the second quarter of 2013. Industrial Solutions booked the strongest increase in EBITA. The main driver of this increase was the strong rise in turnover and improved efficiency in the manufacturing systems segment. EBITA at Telecom Solutions came in lower, although this was compared to the exceptionally strong second quarter of 2013. EBITA was higher at Building Solutions, largely due to the efficiency measures TKH has taken and the focus on the company’s vertical growth markets.

Thanks to lower financial expenses, a lower tax burden and a higher operating result, net profit before amortisation and one-off income and expenses attributable to shareholders came in 68.4% higher.

ROS rose to 9.8%, compared with 7.8% in the year-earlier period.

 

Financial developments in the first half

 

Turnover in the first half was up by 11.9% at € 657.1 million (H1 2013: € 587.1 million). Acquisitions accounted for 0.4% of total turnover. The drop in raw materials prices had a negative impact of 1.3% on turnover. Turnover increased organically by 12.8% in the first half.

Industrial Solutions’ share of total turnover increased to 50.9% in the first half of 2014, compared with 45.2% in the first half of 2013. Building Solutions’ share of total turnover fell to 36.8% from 41.1% due to the strong growth at Industrial Solutions. Telecom Solutions’ share fell to 12.3% from 13.6%.

The gross margin rose to 41.8% in the first half of 2014, from 40.9% in the first half of 2013, thanks to an improved product mix.

Operating costs (excluding one–off expenses) as a percentage of turnover fell to 32.7% in the first half of 2014, from 33.6% in the first half of 2013. This was due to higher capacity utilisation at TKH’s production locations and the efficiency programmes implemented in the second half of 2013.

At € 10.1 million, depreciation came in higher than in the first half of 2013 (€ 9.7 million) due to higher investment levels in recent years.

The operating result before the amortisation of intangible assets (EBITA) came in 41.0% higher at € 60.2 million in the first half of 2014, compared with € 42.7 million in the first half of 2013. EBITA at Industrial Solutions was up 74.3% compared to the first half of 2013, largely due to higher turnover and improved efficiency and capacity utilisation at TKH’s production locations. At Building Solutions, EBITA rose by 9.7% to € 18.3 million in the first half of 2014, from € 16.7 million in the first half of 2013. Telecom Solutions saw its EBITA decrease by 19.1%.

ROS rose to 9.2% in the first half of 2014, from 7.3% in the year-earlier period.

Amortisation charges were up by € 1.0 million at € 12.9 million (H1 2013: € 12.0 million), largely due to investments in R&D.

Financial expenses fell by € 2.3 million to € 4.8 million in the first half of 2014. This improvement was the result of lower interest expenses following the renewal of TKH’s credit facility as per October 2013, the expiration of interest rate swaps and favourable currency effects of € 0.5 million compared with the first half of 2013. The lower interest expenses were offset by lower income from participations, the income from which was positively affected by currency effects in 2013.

The tax rate fell to 21.5% in the first half of 2014, from 23.0% in the first half of 2013. In 2014, TKH renewed a significant agreement with the Dutch tax authority on the innovation box facility, which will now run to year-end 2018.

Net profit before amortisation and one-off income and expenses attributable to shareholders came in at € 37.1 million in the first half of 2014 (H1 2013: € 22.9 million). Net profit for the first half of 2014 rose to € 33.5 million (H1 2013: € 19.4 million), an increase of 73.3%.

TKH’s net bank debt, calculated in accordance with the banking covenants, increased by € 37.7 million from year-end 2013 to € 223.3 million. This increase is related to higher working capital utilisation, due to seasonal influences, and dividend payments. Solvency came in at 40.8% (H1 2013: 40.6%). The Net debt/EBITDA-ratio came in at 1.6 and the interest coverage ratio at 14.6, well within the financial ratios TKH has agreed with its banks. The working capital rose to 15.8% of turnover, compared with 15.5% as per 30 June 2013.

As per 30 June, TKH had a total of 4,918 permanent employees (FTEs) (end-June 2013: 4,683). In addition, TKH had a total of 452 temporary employees as per 30 June 2014 (end-June 2013: 305).

 

Developments per solutions segment

 

Telecom Solutions

 

Profile

Telecom Solutions develops, produces and supplies systems ranging from basic outdoor infrastructure for telecom and CATV networks through to indoor home networking applications. The focus of the business is on the delivery of completely worry-free systems for its clients, thanks to the system guarantees it provides. Around 40% of the portfolio consists of hub-to-hub optical fibre and copper cable systems. The remaining 60%, consisting of components and systems in the field of connectivity and peripherals, is deployed primarily in the network hubs.

Key figures Telecom Solutions

(in mln € unless otherwise stated) 

 

H1

2014

H1

2013

Change

in %

Turnover

          80.5

           80.1

    +       0.5

EBITA

            6.7

             8.3

    -      19.1

ROS

         8.3%

        10.3%

 

 

Turnover in the Telecom Solutions segment increased slightly by 0.5% to € 80.5 million despite a strong decline in the sub-segment copper network systems. Turnover in optical fibre network systems improved, partly on the back of projects in China, Poland and Germany. 

EBITA was down € 1.6 million as a result of margin pressure due to overcapacity and the acquisition of a number of strategic projects. ROS dropped to 8.3%, from 10.3%.

 

Indoor telecom systems - home networking-systems, broadband connectivity,  IPTV software solutions – turnover share 4.2%

Turnover in this segment was up 11.5% due to an expansion of the product portfolio and a slight increase in consumer spending in the European market. 

Fibre network systems - optical fibre, optical fibre cables, connectivity systems and components, active peripherals – turnover share 6.8%

Turnover in the segment was up 8.5%. Growth was driven primarily by China, Poland and Germany. The acquisition of some strategic optical fibre projects pressured the margin, but these projects offer TKH the perspective of higher growth levels. Overcapacity at a number of manufacturers resulted in a slight decline in sales prices. The expected increase in demand in China will reduce this overcapacity. TKH started an investment to further increase the efficiency of its optical fibre production capacity in China and expects to complete this project at the end of the first quarter of 2015. 

Copper network systems – copper cable, connectivity systems and components, active peripherals – turnover share 1.3%

Turnover in this segment declined by 41.9% in line with the higher priority for and higher investments in optical fibre networks and 4G networks. As from 1 January 2015, this sub-segment will be combined with the indoor telecom systems segment due to its limited scope.

 

Building Solutions

 

Profile

Building Solutions develops, produces and delivers solutions in the field of efficient electro-technical technology, ranging from applications within buildings to technical systems which, linked to software, provide efficiency solutions for the care and security sectors. TKH’s know-how in this segment is focused on vision technology and connectivity systems combined with efficiency solutions to reduce the throughput-time for the realisation of installations within buildings and industrial automation. In addition, TKH’s focus in this segment is on intelligent video, intercom and access monitoring systems for a number of specific sectors, including elderly care, parking, marine, oil & gas, tunnels and security for buildings and work sites.

 

Key figures Building Solutions

 (in mln. € unless otherwise stated)

 

H1

2014

H1

2013

Change

in %

Turnover

        242.3

         241.5

    +     0.3

EBITA

          18.3

           16.7

    +     9.7

ROS

         7.5%

          6.9%

 

 

Turnover within the Building Solutions segment was up 0.3% at € 242.3 million. Acquisitions boosted growth by 0.9%. Lower raw materials prices had a negative impact of 1.7% on turnover. Organic growth came in at 1.1% in the first half of the year. 

EBITA increased to € 18.3 million. The result improved on the back of the efficiency programmes launched in 2013 and the growth realised. ROS rose to 7.5% in the first half of 2014, from 6.9% in the same period of 2013. 

 

Building technologies – energy-saving light and light switch systems, energy management systems, care systems, structured cabling systems – turnover share 6.8%

Turnover was up 0.8% in this segment. The second quarter was stronger compared to the  first quarter, due to new key contracts in the vertical growth markets Tunnel & Infra and Parking. The focus on integrated solutions in specific markets is bearing fruit. There is still a reluctance to invest in the Dutch healthcare sector due to government changes in healthcare policy. 

 

Vision & Security systems – Vision technology, systems for CCTV, video/audio analysis and detection, intercom, access control and registration, central control room integration – turnover share 18.1%

Turnover in this segment rose 5.9%, largely thanks to the vision technology companies. Turnover and order intake improved in China, Germany and France. The increasing internationalisation of the roll-out of the security portfolio is also contributing to the  growth. This compensated for the reluctance to invest we are seeing in the building and construction sector in the Benelux.

In the first half of the year, we strengthened the organisation in the fields of R&D, production and commerce to create a basis for above-average growth in the years to come. 

 

Connectivity systems – specialty cable (systems) for shipping, rail, infrastructure, wind energy, as well as installation and energy cable for niche markets – turnover share 11.9%

Turnover in this segment dropped by 7.2% due to a decline in market volume in the building and construction sector. Lower raw materials prices had a negative impact of 4.9%. In addition, energy and network companies maintained a lower level of investments. Despite fierce competition, TKH was able to improve its margin thanks to the efficiency programmes TKH implemented and the focus on growth markets such as Tunnel & Infra and Marine, Oil & Gas.

  

Industrial Solutions

 

Profile

Industrial Solutions develops, produces and delivers solutions ranging from specialty cable, plug and play cable systems to integrated systems for the production of car and truck tyres. The company’s know-how in the automation of production processes and improvements in the reliability of production systems gives TKH the differentiating potential to respond to the increasing desire to outsource the construction of production systems or modules in a number of specialised industrial sectors, such as tyre manufacturing, robotics, medical and machine construction industries.

 

Key figures Industrial Solutions

 (in mln. € unless otherwise stated)

 

 

H1

2014

H1

2013

Change

in %

Turnover

           334.3

          265.5

    +   25.9

EBITA

             41.1

            23.6

    +   74.3

ROS

         12.3%

          8.9%

 

 

 

Turnover in the Industrial Solutions segment rose by 25.9% to € 334.3 million. Raw materials prices had a negative impact of 1.2% on turnover. Organic turnover growth came in at 27.1%. Turnover corrected for lower raw materials prices increased by 3.8% in connectivity systems. Turnover in manufacturing systems was up 46.5% and is in line with the growth in order intake.

EBITA came in 74.3% higher at € 41.1 million. This substantial increase in EBITA was due to higher turnover, greater efficiency and an improved distribution of the capacity utilisation across the available production locations.  

 

Connectivity systems – specialty cable systems and modules for the medical, robot, automotive and machine building industries – turnover share 18.5%

Turnover in this segment was up 3.8%, corrected for the negative impact of raw materials prices of 2.8% on turnover. Improved market conditions had a positive impact on order intake in the second quarter. The trend of outsourcing more complete modules and systems continued in the period under review. In response to this trend, TKH is investing in an integrated solution based on vision and connectivity technology. TKH also received the first orders for the newly-developed drag chain portfolio for the industrial market.   

Manufacturing systems – advanced manufacturing systems for the production of car and truck tyres, can washers, test equipment, product handling systems for the medical industry, machine operating systems – turnover share 32.4%

Turnover in this segment was up 46.5%. Investments in new technology and production capacity translated into a considerable growth in order intake and turnover, with order intake in excess of € 200 million in the first half of 2014. TKH continued to increase its market share in the top five tyre manufacturers in the industry and the order intake outside that top five also increased. The improved capacity utilisation at the various production locations led to a higher margin.      

 

Developments after 30 June 2014

 

As announced on 11 July 2014, TKH has increased its interest in Augusta Technologies AG to around 91%. On that basis, TKH has launched a merger-squeeze-out procedure to acquire the remaining shares in the company, which are currently held by minority shareholders.  

TKH aims to further accelerate the cooperation between the vision technology companies within the TKH Group and Augusta, to enable the roll-out of a joint strategy in this field.

TKH financed this in July acquired additional interest in Augusta from credit facilities already at its disposal.

The complete press release and the powerpoint presentation can be downloaded in PDF