Alexander van der Lof, CEO of technology company TKH:
“The decline in the results in the second quarter was in line with the previous reported reduced order intake from China in the manufacturing systems sub-segment. The situation in China did not improve in the second quarter due to the postponement of a number of expected orders, also from the big five tire manufacturers. The outlook for the order intake in the second half of the year is better, due to a number of newly announced large-scale projects in which TKH is well positioned. In the second quarter, we were able to agree on a framework agreement with a major tire manufacturer. We have further adjusted our production capacity upwards with a view to the expected higher activity levels in the coming quarters. We also made a number of breakthroughs in the Building and Telecom Solutions segments and closed some major contracts that will result in an increase of turnover. The investments in R&D within Building Solutions were increased to accelerate the completion of a number of large R&D projects on the basis of positive feedback from pilot projects. Great interest is shown by customers in the form of concrete orders for the new technologies, including CEDD, machine vision, subsea-connectivity and light truck tire building systems. Investments in preparation for the targeted growth within the vertical growth markets create a lot of confidence for the future but are having a slightly negative impact on short-term ROS.”
Financial developments second quarter
Turnover declined by € 23.4 million (6.6%) to € 333.3 million in the second quarter of 2016 (2015: € 356.7 million). The divestment of Parking & Protection resulted in a 0.4% decline in turnover. The on average weaker foreign currencies against the euro had a negative impact of 1.0% on turnover. Lower raw materials prices had a negative impact of 2.0% on turnover. On balance, the organic turnover decline was 3.2%.
The turnover decline in the second quarter was due entirely to Industrial Solutions and is a consequence of a lower order intake in the manufacturing systems sub-segment in recent quarters. The other segments, Telecom and Building Solutions, realized organic growth of 11.8% and 2.6% respectively.
The operating result before amortization of intangible assets and one-off income and expenses (EBITA) declined by 11.2% in the second quarter of 2016 to € 33.6 million (€ Q2 2015: € 37.8 million). Both Building Solutions’ and Telecom Solutions’ EBITA came in higher than in the second quarter of 2015, while Industrial Solutions recorded a clear decline in EBITA.
Net profit before amortization and one-off income and expenses attributable to shareholders fell by 12.1% to € 21.5 million (Q2 2015: € 24.4 million), as a result of the lower operating result.
The ROS for TKH came in at 10.1% in the second quarter of 2016 (Q2 2015: 10.6%).
Financial developments first half year
Turnover declined by 5.8% to € 650.1 million in the first half of 2016 (H1 2015: € 690.0 million). The divestment of Parking & Protection resulted in a drop in turnover in the first half year of 0.4%. Both weaker foreign currencies against the euro and a drop in raw materials prices had a negative impact on turnover of 0.7% and 1.8% respectively. The organic turnover decline was 3.0%.
The contribution from Industrial Solutions to overall turnover dropped to 44.9% in the first half year, from 46.7% in the year-earlier period. The contribution from Building Solutions was up slightly at 42.1%, from 41.7% of total turnover. The contribution from Telecom Solutions rose to 13.0%, from 11.7%.
The gross margin increased to 46.4% in the first half of 2016, from 46.0% in the first half of 2015. The higher margin was realized in Building and Industrial Solutions on the back of an improved product mix.
Operating costs were down 2.6% compared to the first half of 2015. However, operating costs as a percentage of turnover rose to 36.5% in the first half of 2016, from 35.3% in the first half of 2015. This relative increase was largely due to lower turnover levels in the manufacturing systems sub-segment, while investments in the required expansion of the organization in a number of specific vertical growth markets in the area of R&D, commerce and production capacity were higher.
Depreciations came in at € 10.1 million, down from € 10.9 million in the first half of 2015.
The operating result before amortization of intangible assets and one-off income and expenses (EBITA) fell by 12.3% to € 64.8 million in the first half of 2016, from € 73.8 million in the first half of 2015. EBITA in Telecom Solutions was up 16.0% compared to the first half of 2015. In Building Solutions, EBITA was down 3.7%, while Industrial Solutions recorded a drop in EBITA of 23.2%.
ROS fell to 10.0% in the first half of 2016, from 10.7% in the first half of 2015.
Amortization costs increased by € 0.5 million to € 15.9 million (H1 2015: € 15.4 million), due to higher investments in R&D made in recent years.
The financial result improved with € 2.0 million to a net amount of € 2.4 million in the first half of 2016. Interest expenses were € 0.8 million lower and a reduction in the negative currency exchange effects resulted in an improvement of € 0.9 million. The result from participations was up € 0.3 million.
The tax rate was 21.7% in the first half of 2016, compared with € 22.6% in the same period of 2015. The use of the Dutch innovation box facility once again had a positive impact on the overall tax rate.
Net profit before amortization and one-off income and expenses attributable to shareholders was down 12.8% at € 41.0 million in the first half of 2016 (H1 2015: € 47.0 million). Net profit fell to € 35.9 million in the first half of 2016 (H1 2015: € 41.3 million).
Net bank debt, calculated in accordance with the covenants agreed with the banks,increased by € 46.0 million from year-end 2015, to € 207.0 million. This increase was due to dividend payments, investments and the higher working capital due to seasonal effects. The net debt/EBITDA ratio came in at 1.3 and the interest coverage ratio stood at 23.7. This means that TKH is operating well within the bandwidth of the financial ratios agreed with its banks. The solvency ratio stood at 44.2% (H1 2015: 40.2%). Working capital increased to 14.4% at 30 June 2016, from 11.4% at year-end 2015, due to seasonal effects, but was considerably lower when compared to mid-2015 (18.2%).
At 30 June 2016, TKH had a total workforce (FTEs) of 5,433 (mid-2015: 5,337) and employed an additional 405 temporary staff at 30 June 2016 (mid-2015: 478).
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 60% of the portfolio consists of hub-to-hub optical fibre and copper cable systems. The remaining 40%, consisting of components and systems in the field of connectivity and peripherals, is deployed primarily in network hubs.