Alexander van der Lof, CEO of TKH:
“Innovations made a significant contribution to the sharp rise in results and the increase in TKH’s market share in 2011. The investments we have made over the past few years are now clearly paying off, in terms of TKH’s much stronger market positioning thanks to the company’s greater ability to differentiate itself from its peers. In the coming years, we will be intensifying the efforts we have made to gain a technological advantage. The acquisitions we made in 2011 will certainly contribute to the technological development within the company and to TKH’s growth in the future. We do not yet have a clear idea of just how much the weakening of several end-markets seen as of the third quarter will impact our results in 2012. The investments we made in the organisation and in the market in 2011 have put TKH in a solid position to increase its market share and to withstand challenging market conditions. The outlook for investments in most market segments is positive. However, the translation of this positive sentiment into concrete orders in the industrial sector is suffering delays, which in the fourth quarter led to lower business levels that had a limited impact on results."
Turnover rose by € 167.6 million (18.8%) to € 1,061.1 million, from € 893.5 million in 2010. Higher raw materials prices charged on to customers accounted for 1.4% of this rise in turnover. Acquisitions accounted for 3.4% of turnover in 2011, while the divestment of the GSM business in 2010 resulted in a drop in turnover in 2011. On balance, organic growth came in at 15.5% in 2011.
Turnover growth was strongest in Industrial Solutions at 25.5%. Turnover within Building Solutions rose by 16.0% and was up by 6.6% in Telecom Solutions. Excluding the impact of the divestment of the Polish GSM business, turnover was up 12.1% in this segment. Over the full year 2011, the contribution to total turnover from Industrial Solutions rose to 49% from 46%, while the contribution from Telecom Solutions fell to 15% from 17% and Building Solutions decreased to 36% from 37%. Innovations again made a significant contribution to increases in turnover, accounting for some 23% of turnover in 2011, up from 21% in 2010.
The gross margin fell slightly to 38.9% in 2011, from 39.0% in 2010. Operating expenses as a percentage of turnover fell to 30.4% in 2011 from 30.8% in 2010, despite higher costs as a result of acquisitions and investments in innovations and the commercial organisation. Improved cost efficiency was partly due to higher business activity levels.
At € 15.3 million, depreciations were higher than in 2010 (€ 13.6 million) due to higher investment levels in 2010 and 2011.
TKH’s operating result before amortisation of intangible assets (EBITA) rose by 22.8% to € 90.1 million in 2011, from € 73.4 million in 2010. The EBITA at Industrial Solutions rose sharply compared with 2010. At Telecom Solutions, EBITA fell as a result of the divestment of the GSM activities in the third quarter of 2010. Excluding this divestment, Telecom Solutions booked a 19.8% organic rise in EBITA. Building Solutions booked a 12.9% drop in EBITA, largely due to one-off acquisition and integration costs of € 2 million, as well as the strengthening of R&D and the sales organisation and pressure on margins in the connectivity segment.
ROS rose to 8.5% in 2011, from 8,2% the previous year. This rise was realised despite the integration costs and investments in the organisation and is a direct result of the high innovation level at TKH, as well as improved coverage and efficiency, primarily within Industrial Solutions.
Amortisation costs were up by € 1.7 million to € 13.1 million, compared with € 11.4 million in 2010, due to investments in R&D, software and patents (+ € 0.7 million) and the acquisition of Alphatronics in 2010 and Siqura, Mextal, FlexPosure and KLS Netherlands (+ € 1.0 million).
Financial expenses rose to € 7.5 million in 2011 from € 7.1 million in 2010. This increase was largely due to higher outstanding interest-bearing debt, despite a positive currency effect of € 0.4 million compared with 2010. The result from participations rose by € 0.2 million to € 0.1 million.
The tax burden fell to 22.3% in 2011 from 24.7% in 2010, largely as a result of the application of the Dutch innovation box. This includes a one-off benefit for previous years. The normalised tax burden came in at around 25%.
Net profit before amortisation came in at € 59.1 million in 2011, compared with € 45.1 million in 2010. Net profit rose to € 54.1 million in 2011, an increase of 32.3% from the € 40.9 million recorded in 2010. Ordinary earnings per share came in at € 1.44, compared with € 1.10 in 2010.
Operational cash flow fell to € 47.4 million in 2011, from € 55.2 million in 2010, due to an increase in working capital. In 2011, working capital as a percentage of turnover rose to 11.6%, from 9.9% in 2010.
Net investments in real estate and equipment came in at € 21.9 million in 2011. A large part of this was related to investments in production facilities. TKH invested another € 34.5 million in acquisitions and participations. At year end 2011, net bank debt stood at € 100.5 million, an increase of € 36.6 million from year-end 2010. Solvency fell to 45.6% from 47.1% in 2010. TKH is operating well within the financial ratios agreed with its banks. The net debt/EBITDA ratio came in at 0.9 and the interest coverage ratio at 13.0. At year-end 2011, TKH closed a new € 250 million five-year committed credit facility. The company also renewed and raised its non-committed credit facilities.
At year-end 2011, TKH had a workforce of 4,062 FTEs, up from 3,706 a year earlier.
Progress in realisation of goals and execution of strategy
TKH continued to increase the differentiating potential of its activities in 2011, which allowed the company to expand its leading positions in the niche markets in which TKH operates and to claim new market positions. TKH made good progress in the transformation of the group. The company made considerable investments aimed at realising TKH’s goals for the coming years. The security segment is one very important part of the group that saw heavy investment. TKH believes it can make substantial improvements to its overall ROS by shifting the mix of activities towards those with greater added value. Increasing TKH’s differentiating potential through innovation will play a very significant role in the transformation of the company. The ROS rose to 8.5% in 2011, from 8.2% in 2010, which again brought us closer to our ROS bandwidth target of between 9% and 10%.
TKH realised a ROCE of 21.5% in 2011, up from 20.0% in 2010, through a combination of strong margin improvement and effective working capital management. This exceeded our ROCE bandwidth target of 18% to 20%. We do not see any reason at this point to adjust this bandwidth, as a greater focus on acquisitions in the coming years could exert a downward pressure on the ROCE in the first years after an acquisition. However, various TKH activities still have a great deal of room to improve their ROCE and TKH has launched a number of initiatives with this goal in mind.
TKH took several steps in its acquisition strategy in 2011 with the acquisition of Siqura (security), Mextal (care), FlexPosure (parking) and KLS Netherlands (care).
As a result of its refinancing, TKH now has between € 100 and € 150 million available for acquisitions. We will be giving a high priority to acquisitions that also enable us to strengthen our activities geographically and boost our technological development, primarily in the security systems segment.
The fact that innovation accounted for no less than 22.8% of turnover in 2011, up from 20.9% in 2010, is proof yet again of the success of the TKH group. Innovations are a powerful motor for TKH group’s organic growth.
Business per solutions segment
Telecom Solutions develops, produces and delivers systems for applications from basic outdoor infrastructure for telecom and CATV networks to indoor home networking. The focus is on providing customers with care-free systems due to the system guarantees we provide. Around 40% of the portfolio consists of optical fibre and copper cable for node-to-node connections. The remaining 60%, consisting of components and systems in the field of connectivity and peripheral equipment, is used mainly in the network’s nodes.