Alexander van der Lof, CEO of technology company TKH: "As we publish our results today, we are proud to show such strong growth and a record high order intake of € 1,842 million. At the same time though, our thoughts go out to all people in Ukraine, and in particular our 128 employees and their families in the area of Kiev. We are deeply concerned about the war and we are monitoring the situation carefully. We will support them across our organization as much as possible in this difficult and uncertain time.
Looking back at 2021, the demand for all our technologies and innovations has strongly recovered. We have proven to possess the capabilities and entrepreneurship within our organization to cope with the exceptional increase in demand in a very short period, despite the supply-chain challenges, COVID-19 restrictions, and limits on the availability of workforce.
As a result of our Simplify & Accelerate program, TKH has transformed into a streamlined and focused technology company. This has led to a new segmentation based on our three Smart Technologies, making our performance more transparent. We launched the Accelerate 2025 program at the Capital Markets Day on 17 November with new targets for 2025, giving us a strong foundation for value creation in the coming years. In addition, we decided to increase our focus on, and commitment to, ESG and sustainability.
We are well-positioned to benefit strongly from megatrends like the energy transition, digitalization and industrial automation. To respond to the high market demand, we have decided to prepare for an expansion of our production capacity and additional capital investments in 2022 and 2023. Furthermore, by increasing our focus on Smart Technologies with more intelligent software, we can take advantage of the expected market growth and unlock the full potential of our disruptive technologies, leading to a ROS of over 17% over the medium term."
After the successful implementation of the Simplify & Accelerate program (introduced in 2019), strongly focused on activities with higher ROS and organic growth, TKH has made significant steps to transform the organization and increase its focus on value creation during 2021. With several divestments, integrations, innovations, and acquisitions financial performance was further increased. The ROS of 13.2% in the second half year of 2021 (H2 2020: 10.9%) showed that TKH made good progress towards the ROS target.
As part of its simplification, TKH has changed to new reporting segments: Smart Vision systems, Smart Manufacturing systems, and Smart Connectivity systems. The new segmentation reporting will provide more transparency and perspective on the potential of our value creation in the coming years. To enable comparison, the previous segmentation is disclosed in the notes to financial statements.
On the Capital Markets Day in November 2021, we launched our new program Accelerate 2025, which aims to increase our turnover to more than € 2 billion and a ROS of >17% by 2025. This will be realized by unlocking the full potential of our innovations and disruptive technologies. Benefitting from megatrends such as energy transition, digitalization, industrial automation and safety and security, we will be able to take full advantage of the expected market growth.
Investments & divestments
To respond to the high market demand related to the megatrends, we have decided to prepare for an expansion of our production capacity and additional capital investments in 2022 and 2023. As part of Accelerate 2025, we expect to acquire around € 100 - € 150 million in turnover during the coming years. A further € 150 - € 200 million of turnover will be divested, as we continue to reduce activities with lower margin and growth potential. Preparations have started in 2021.
Impact of COVID-19
COVID-19 continued to have an impact on operations and financial performance in 2021. Following a slow start in the first quarter of 2021, due to the ongoing COVID-19 restrictions in several countries, we saw a strong recovery in most markets. The airport and parking industries investments were still postponed. During the year, COVID-19 restrictions caused operational challenges in commissioning equipment at customer sites. Also, our absence rate was higher than usual due to quarantine regulations and other precautions. However, despite these challenges and limitations, the organization was able to adapt very well.
Financial developments second half of 2021
Turnover was up with € 187.5 million (30.7%), leading to a total of € 797.9 million in the second half of 2021 (H2 2020: € 610.4 million). Higher raw materials prices had an upward impact of 2.7% on turnover, while higher exchange rates contributed 0.5%. On balance, TKH recorded a 27.5% organic growth in turnover. All three segments contributed to the organic growth in turnover, but Smart Manufacturing systems was the highest contributor with an organic growth of 51.8%, largely driven by the recovery in the tire building industry.
The gross margin decreased to 48.5% (H2 2020: 49.4%) due to increased raw material and component prices and a shift in product mix with a lower share in Smart Vision systems.
The operating result before amortization of intangible assets and one-off income and expenses (EBITA) increased by 58.1% to € 105.2 million in the second half of 2021 (H2 2020: € 66.5 million). All segments contributed to the increase in EBITA; Smart Vision systems contributed with +20.7%, Smart Manufacturing systems with +135.7%, and Smart Connectivity systems with +48.2%, respectively. The ROS improved to 13.2% (H2 2020: 10.9%) due to turnover growth and a lower relative cost level.
The financial result improved by € 2.3 million, largely due to a higher result from associates that benefited from the recovered market demand.
The normalized effective tax rate increased to 25.6% in the second half of 2021 compared to last year (H2 2020: 24.7%).
Net profit before amortization and one-off income and expenses attributable to shareholders increased by 87.6% to € 64.5 million (H2 2020: € 34.4 million).
Financial developments full year 2021
The recovery of the order intake, which already started in the fourth quarter of 2020, continued during 2021. We realized a high order intake of € 1,842 million (2020: € 1,294 million) on the back of a strong increase in demand for almost all our activities, leading to an order book at year-end of € 746.6 million, an increase of 74.3% compared to last year. Particularly, significant growth in order intake was realized in Machine Vision (Smart Vision systems), Tire Building (Smart Manufacturing systems), energy and digitalization (Smart Connectivity systems).
Turnover increased with € 234.4 million (18.2%) to € 1,523.8 million in 2021 (2020: € 1,289.4 million). Higher raw material prices had an upward impact of 2.6% on turnover, while exchange rates had a negative impact of 0.1%. Divestments had a downward impact of 0.2%. On balance, TKH recorded a 15.9% organic growth in turnover. All segments contributed to the organic growth in turnover. The supply-chain challenges in the availability and transportation of raw materials and components had a negative impact of about € 20 – € 30 million on our turnover in 2021, although our procurement teams managed to find solutions for the majority of issues. We responded to these challenges by increasing our stock levels and ensuring a larger supply of replacements for components, redesigning some of our products, and contracting alternative suppliers. Our pricing power enabled us to pass on most of the resulting price increases.
The geographic distribution of turnover remained mostly in line with 2020. The turnover share in the Netherlands decreased to a level of 22% of total turnover (2020: 24%), whereas the turnover share in Europe, excluding the Netherlands, increased to 45% (2020: 43%). The turnover share in Asia remained unchanged at 19%, North America decreased to 11%. The turnover share of the other geographic areas was 3%.
The gross margin decreased to 48.3% in 2021 (2020: 49.2%) due to a shift in product mix, with a larger share in Smart Connectivity systems combined with increased raw material and component prices.
Operating expenses (excluding amortization and impairments) increased by 9.6% compared with last year. As a percentage of turnover, operating expenses decreased to 35.9% in 2021, from 38.7% in 2020. The implemented integrations and cost savings accounted for a significant share of the relative reduction of costs, in combination with higher productivity and capacity utilization in TKH’s production companies. At the same time, selling expenses were still low due to the ongoing COVID-19 restrictions. Depreciation came in at € 45.2 million, € 0.3 million below the level of 2020, mainly due to a lower depreciation on the right-of-use assets.
The operating result before amortization of intangible assets and one-off income and expenses (EBITA) increased by 39.9% to € 189.6 million in 2021, from € 135.5 million in 2020. All segments contributed to the increase in EBITA; Smart Vision systems contributed with +18.9%, Smart Manufacturing systems with +43.5%, and Smart Connectivity systems with +61.9%, respectively. The ROS improved to 12.4% (2020: 10.5%) due to the turnover growth and a lower relative cost level. ROS increased in all three segments.
Amortization decreased as the amortization on certain purchase price allocations related to past acquisitions has ended.
The financial result remained stable at € 8.0 million (in expense). In 2020, a profit of € 5.5 million on divestments was included. In 2021, foreign exchange results and results from associates improved, while interest expenses were lower.
The normalized effective tax rate increased to 26.2% in 2021, from 25.4% in 2020, primarily due to increased profits at companies that are subject to higher tax rates.
Net profit before amortization and one-off income and expenses attributable to shareholders increased by 62.0% to € 113.9 million (2020: € 70.3 million). Net profit rose by 100.4% to € 95.2 million (2020: € 47.5 million). Earnings per share before amortization and one-off income and expenses amounted to € 2.77 (2020: € 1.69). Ordinary earnings per share were € 2.31 (2020: € 1.14).
The cash flow from operating activities amounted to € 199.0 million in 2021 (2020: € 187.8 million). In 2020, the cash flow was boosted by a decline in working capital, while there was little change in 2021. At year-end 2021, working capital fell as a percentage of turnover to 10.1% (2020: 12.1%) and therefore ended below the bandwidth target of 12–15%. The cash flow from net investments in property, plant, and equipment amounted on balance to € 31.0 million in 2021. It was higher than in recent years (2020: € 25.3 million), partly due to the divestment of business premises held for sale in 2020. The investments in intangible assets related to development costs, patents, licenses, and software slightly increased to € 40.5 million in 2021 (2020: € 39.2 million). TKH spent € 0.5 million on acquisitions (2020: € 0.5 million). There were no divestments in 2021 (2020: € 21.2 million).
Solvency was stable at 42.5% (2020: 42.3%). Net bank borrowings fell by € 56.3 million from the level at year-end 2020 to € 205.4 million at year-end 2021. The net debt/EBITDA ratio, calculated according to TKH’s bank covenant, stood at 0.9, well within the financial ratio agreed with our banks.
At year-end 2021, TKH employed a total of 6,160 FTEs (2020: 5,704), with 376 of those as temporary employees (2020: 121 FTEs).
Developments per technology segment
Smart Vision systems
TKH creates state-of-the-art Vision systems, and Vision technology represents about 86% of the turnover of the Smart Vision systems segment. This technology encompasses 2D and 3D Machine Vision and Security Vision systems. Combining these technologies with in-house software development allows us to create unique, smart, integrated plug-and-play systems, and one-stop-shop solutions.