Alexander van der Lof, CEO of technology company TKH: “In the past period, TKH took a number of significant initial steps in the execution of its ‘Simplify & Accelerate’ program. The envisaged divestment of the majority of its industrial connectivity activities and the acquisition of companies with innovative vision technology will intensify TKH’s technology focus on hardware in combination with software and artificial intelligence. In addition, TKH has made progress in the integration of activities enabling the company to make even better use of economies of scale. With the cost level in the first half year, TKH anticipated on the expected growth in the second half year. Furthermore, the cost level was higher due to integration costs which were implemented in line with the ‘Simplify & Accelerate’ program. This had a dampening effect on the result. Based on the higher order book and a number of projects in the pipeline we expect to increase both turnover and result compared with the first half of the year.”
Financial developments in the first half
Turnover increased by 3.5% to € 753.2 million in the first half of 2019 (H1 2018: € 728.0 million). Turnover increased organically by 0.1%. Lower raw materials prices had a negative impact of 0.3% on turnover, while on average stronger foreign currencies compared with the euro had a positive translation effect of 0.5% on turnover. Acquisitions accounted for a 3.2% increase in turnover. Telecom Solutions and Industrial Solutions both recorded an organic growth in turnover. Building Solutions saw a slight decline.
The gross margin increased slightly to 47.4% (H1 2018: 47.2%).
Operating costs increased by 8.1% when compared with the first half of 2018. The operating costs of the acquired companies resulted in a 4.8% increase in costs, while currency exchange rates had a positive impact of 0.7%. As a percentage of turnover, operating costs increased to 37.1% in the first half of 2019, from 35.5% in the first half of 2018. This increase was largely due to higher operating costs levels at TKH’s production plants, driven by the expansion of production capacity in the course of 2018 and preparations for the growth expected in the second half of this year. Depreciations amounted to € 22.3 million and were € 9.7 million higher than the level seen in the first half of 2018. This was largely related to the depreciation of rights of use assets due to the implementation of IFRS 16 Leases as of 1 January 2019.
The operating result before amortization of intangible assets and one-off income and expenses (EBITA) fell by 8.8% to € 77.6 million in the first half of 2019, from € 85.1 million in the first half of 2018. At Telecom Solutions, EBITA increased by 1.6%. Building Solutions and Industrial Solutions recorded a decline of 15.5% and 4.2% respectively.
The ROS declined to 10.3% in the first half of 2019 (H1 2018: 11.7%).
Amortization costs increased by € 5.6 million due to acquisitions and the higher investments in R&D in recent years.
The financial result fell by € 2.1 million. Interest expenses rose by € 1.2 million, largely due to the application of IFRS 16. This was offset by a more favorable currency exchange impact of € 0.5 million. The result from other associates fell by € 1.4 million, due to the lower volumes and prices of preforms at the associate, preform producer Shin-Etsu in China.
With 23.0% the tax rate was equal to the first half year of 2018.
Net profit from continued operations before amortization and one-off income and expenses attributable to shareholders declined by 16.6% to € 45.9 million (H1 2018: € 55.0 million). Net profit decreased by 22.0% to € 42.8 million (H1 2018: € 54.9 million).
TKH’s net bank debts, calculated in accordance with the bank covenant, increased by € 79.7 million compared with year-end 2018 to stand at € 406.3 million. This increase was related to the payment of dividends, the acquisition of ParkEyes and Commend AG, investments and higher working capital. Working capital as a percentage of turnover increased to 16.5% (mid-2018: 16.4%). The net debt/EBITDA ratio stood at 1.9, which meant that TKH was operating well within the financial ratio agreed with its banks. Solvency stood at 36.9% (H1 2018: 43.1%).
The total number of employees with a permanent contract (FTEs), excluding the discontinued industrial connectivity activities, stood at 5,950 at end-June 2019 (mid-2018: 5,518 FTEs). In addition, TKH had a total of 415 temporary employees as per 30 June 2019 (mid-2018: 527).
Developments per solutions segment
Telecom Solutions encompasses the key technologies connectivity, vision & security and mission critical communication. TKH 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 network hubs.