Alexander van der Lof, CEO of technology company TKH:
“Despite the economic headwinds, TKH booked strong growth in both turnover and profit. So we are confident that TKH is in a good position for the year ahead. Certainly given that the economy currently looks to be on the road to recovery and given that in recent quarters order intake improved in most of the segments in which TKH is active. The profit improvement over the course of the year was also thanks to our focus on the seven high-growth vertical markets we have identified and on which we have focused our efforts for the past 12 months. This has enabled us to take full advantage of the opportunities in these markets. Combining our strengths in the high-growth vertical markets has also deepened the synergies between the technologies and the companies in the group. Thanks to this, TKH is even stronger and fitter.”
Turnover came in € 95.5 million higher (8.7%) at € 1,197.8 million in 2013 (2012: € 1,102.4 million). Acquisitions accounted for 5.7% of turnover. Lower raw materials prices had a negative impact of 1.2% on turnover. On balance, organic turnover growth came in at 4.2%.
Building Solutions booked the strongest turnover growth, with 12.2% higher turnover. Turnover at Industrial Solutions was up 10.7%. Telecom Solutions on the other hand saw turnover drop by 6.2%. In the full year 2013, the share of turnover accounted for by Industrial Solutions increased to 46% from 45%, while the share of Building Solutions rose to 41% from 40%. The share accounted for by Telecom Solutions fell to 13% from 15%. Innovations once again made a strong contribution to turnover, accounting for 21.2% of turnover in 2013 (2012: 21.2%).
The gross margin rose slightly to 41.7% in 2013 from 40.9% in 2012, due to acquisitions. Operating costs, excluding one-off charges and acquisitions, as a percentage of turnover fell to 32.6% in 2013, from 33.1% in 2012, thanks to the efficiency improvement measures taken in 2012. Depreciation came in € 2.0 million higher than in 2012 (€ 17.5 million), largely due to the acquisition of Augusta and higher investment levels in 2012 and 2013.
TKH’s operating result before amortisation of intangible assets and one-off income and expenses (EBITA) came in 16.3% higher at € 99.8 million in 2013, compared with € 85.8 million in 2012. At Building Solutions, EBITA came in 74.4% higher, with just over half of this growth due to acquisitions. At Industrial Solutions, EBITA fell by 2.4% due to a weak first half year. In the second half of the year, Industrial Solutions booked a 23.6% increase in EBITA. At Telecom Solutions, EBITA was 4.3% lower than in 2012. ROS for the TKH group as a whole rose to 8.3%, from 7.8% in 2012.
In the fourth quarter of 2013, TKH launched an additional efficiency improvement programme, largely related to the deterioration of the market conditions in the building and construction industry and TKH’s desire to book continued improvement in the return on sales in the Building Solutions segment. TKH took a one-off charge of € 7.2 million for this efficiency improvement programme. TKH expects these measures to result in annual savings of approximately € 5 million from 2014 onwards.
EBITA including this one-off charge came in € 19.0 million higher (25.8%) at € 92.6 million.
Amortisation charges increased by € 4.2 million to € 25.1 million (2012: € 20.9 million) due to the acquisition of Aasset Security, Augusta Technologie and Park Assist. TKH also took an impairment charge of € 0.2 million.
Financial income and expenses rose to € 15.2 million in 2013, from € 12.1 million in 2012. This increase was largely the result of higher amortisation of capitalised financing costs. These included a one-off charge of € 1.6 million, due to refinancing. In addition, currency exchange had a negative impact of € 0.6 million compared with 2012. As a result of the change in IFRS related to pension schemes, the interest component is now reported under financial expenses, which had a negative impact of € 0.4 million. Interest expenses dropped slightly by € 0.2 million to € 11.2 million.
The result from participations came in at € 1.4 million in 2013, thanks largely to positive results from the Chinese participation Shin-Etsu (Jiangsu) Optical Preform and dividends received.
TKH recorded extraordinary income of € 0.1 million, due to the release of the provision for earn-out and put options held by minority shareholders.
The tax rate fell to 22.5% in 2013, from 23.9% in 2012. As in 2012, the application of the Dutch innovation box facility had a positive impact on the tax rate.
Net profit before amortisation and one-off income and expenses attributable to shareholders came in at € 55.9 million in 2013 (2012: € 47.5 million), a rise of 17.7%. Net profit for 2013 rose to € 41.7 million (2012: € 30.6 million). Earnings per share before amortisation and one-off income and expenses amounted to € 1.48 (2012: € 1.27). The ordinary earnings per share came in at € 0.98 in 2013 (2012: € 0.76).
Operational cash flow rose to € 78.6 million in 2013 (2012: € 75.2 million). In 2013, working capital as a percentage of turnover came in at 13.2%, virtually unchanged from the 13.1% recorded in the previous year. Net investments in property and equipment came in at € 18.7 million in 2013 (2012: € 25.7 million). A large portion of this was related to investments in TKH’s production facilities. In addition, TKH invested a net € 15.5 million in acquisitions and participations and € 16.8 million in intangible fixed assets, largely accounted for by R&D, patents and licences (2012: € 14.1 million). TKH’s net bank debt decreased € 2.6 million to € 185.6 million by year-end 2013, compared with year-end 2012. Solvency fell to 40.7% (2012: 40.8%). TKH is operating well within the financial ratios agreed with its banks. The net debt/EBITDA ratio stood at 1.5 and the interest coverage ratio at 10.9.
TKH had a total workforce of 4,802 (FTEs) at year-end 2013 (2012: 4,736). The increase in the number of employees was largely due to the sharp increase in activities at Industrial Solutions.
Progress in realisation of targets and strategy
TKH’s strategy, launched in late 2012, of focussing on four core technologies - connectivity, vision, communications and manufacturing systems – in combination with seven vertical high growth markets – optical fibre networks, parking, tunnels, care, marine - oil & gas, industrial machine vision and tyre manufacture – has added a new dimension to TKH’s market positioning and potential. TKH sees a growth perspective of € 300 million to € 500 million in turnover in three to five years for these seven vertical growth markets. This was based on the normalised 2012 turnover of € 450 million for these seven vertical markets, including the full effect of acquisitions in 2012. In 2013, TKH increased turnover by € 50 million in these markets.
By choosing to focus on these high-growth vertical markets, TKH has put itself in a good position to improve ROS and ROCE. TKH also sees growth potential in the other markets segments, partly thanks to efficiency measures we have taken and partly thanks to growth we can realise on the back of improved market conditions or TKH’s improved market position, which creates scale-related efficiencies.
The ROS before one-off income and expenses rose to 8.3% in 2013, from 7.8% in 2012. After a weak first quarter, the remainder of the year showed a steady increase, as ROS increased to 11.0% in the fourth quarter, from 9.6% in the same period of 2012. It should be noted, however, that the fourth quarter is traditionally the best performing in terms of seasonal patterns. The above means TKH once again moved closer to its target of a ROS bandwidth of 9-10% over the full year.
The increase in ROS had a positive impact on the ROCE, partly thanks to the fact that the growth in results was largely due to organic growth, combined with a limited increase in invested capital. The acquisition of the majority stake in Augusta in 2012 led to a drop in ROCE in 2012. Due to investments and the capitalisation of the technology base we have created in recent years, ROCE was 15.9% in 2013 (2012: 15.9%).
The innovation component in TKH’s turnover remained high at 21.2% and was once again well above TKH’s target of generating 15% of its turnover from innovations launched on the market over the past two years.
Developments per solutions segment
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.