Alexander van der Lof, CEO of technology company TKH:
“In the second quarter, turnover growth continued in all segments, largely driven by the growth in our vertical growth markets, in which we are well positioned to expand our new technologies. In line with the first quarter, a high order intake was booked in Tire Building Industry. The recovery from China continues and our market share in the top five tire manufacturers has expanded, which gives confidence for further growth. The increase in sales was not fully translated into the consolidated TKH-result due to additional costs in the second quarter. For the further development and positioning of our technologies in key growth markets, significant start-up costs had to be made. We expect these costs will also continue in the third quarter, although to a lesser extent. However, this will strengthen our starting position for profit growth for 2018. In addition, in April and July of this year, we strengthened our market positions through targeted acquisitions in Canada and Australia within our subsegment vision & security systems. The underlying developments are solid and we see a lot of interest in our distinctive technologies, such as our vision technology and the airfield ground lighting portfolio based on CEDD technology.”
Financial developments second quarter
Turnover in the second quarter of 2017 was € 32.2 million (9.7%) higher at € 365.5 million (Q2 2016: € 333.3 million). Higher raw materials prices accounted for an increase of 1.6% in turnover. Acquisitions accounted for 0.6% of the increase. The on average stronger foreign currencies against the euro had a positive impact of 0.1% on turnover. On balance, turnover increased organically by 7.4%.
All segments recorded an increase in turnover in the second quarter. Telecom, Building and Industrial Solutions realized organic growth of 10.9%, 7.9% and 5.8% respectively.
The operating result before amortization of intangible assets and one-off income and expenses (EBITA) declined by 6.0% to € 31.6 million in the second quarter of 2017 (Q2 2016: € 33.6 million). The EBITA at both Telecom and Industrial Solutions was higher when compared to the second quarter of 2016, while EBITA at Building Solutions declined. The decline in Building Solutions was due to the start-up costs for up scaling of new technologies and for strengthening our market positioning in the vertical growth markets Marine & Offshore, Tunnel & Infra and Parking. These costs peaked in the second quarter, while the associated turnover was still limited. TKH also incurred one-off costs related to technology upgrades .
TKH recorded a ROS of 8.6% in the second quarter of 2017 (Q2 2016: 10.1%). Excluding the above mentioned items, the ROS would have been in line with the first quarter of 2017 (10.9%).
The lower operating result led to a decline in net profit before amortization and one-off income and expenses attributable to shareholders of 5.7% to € 20.2 million (Q2 2016: € 21.5 million). However, net profit was up 13.2%, partly on the back of one-off net income of on balance € 3.5 million.
Financial developments first half
Turnover increased by 11.5% to € 725.2 million in the first half of 2017 (H1 2016: € 650.1 million). Organic turnover growth amounted to 9.1%. Higher raw materials prices accounted for an increase of 1.8% in turnover, while on average stronger foreign currencies against the euro had a positive impact of 0.1% on turnover. Acquisitions accounted for turnover growth of 0.5%. All segments contributed to the growth in turnover.
The contribution of Industrial Solutions to overall turnover declined to 44.0% in the first half of 2017, from 44.9% in the year-earlier period. The contribution of Building Solutions to overall turnover increased to 43.0%, from 42.1% a year earlier. Telecom Solutions’ contribution remained stable at 13.0%. The gross margin declined to 45.6% in the first half of 2017, from 46.4% in the first half of 2016. The decline in margin was due to higher raw materials prices and one-off costs related to the upgrade of technology for parking guidance systems.
Operating costs were 9.6% higher compared to the first half of 2016. This increase was largely due to higher production levels, start-up costs for the subsea production capacity, as well as the expansion of the R&D and commercial organization. Acquisitions resulted in a 1.5% increase in costs. As a percentage of turnover, production costs declined to 35.8% in the first half of 2017, from 36.5% in the first half of 2016.
Depreciation amounted to € 11.9 million and were higher than in the first half of 2016 (€ 10.1 million), due to the high investment levels in recent years.
The operating result before amortization of intangible assets and one-off income and expenses (EBITA) was 9.5% higher at € 70.9 million in the first half of 2017, from € 64.8 million in the first half of 2016. The EBITA at Telecom Solutions was up 21.1%. At Building Solutions, the EBITA was down 7.5% and at Industrial Solutions the EBITA was 24.6% higher.
ROS came in lower at 9.8% (H1 2016: 10.0%).
Amortization increased by € 2.3 million to € 18.2 million (H1 2016: € 15.9 million), due to higher R&D spending in recent years.
The financial result declined by € 0.4 million to € 2.8 million in the first half of 2017. Interest expenses were up € 0.3 million due to an on average higher outstanding bank debt. Currency effects had a negative impact of € 0.3 million. The result from other participations was € 0.2 million higher.
At the end of July, TKH agreed a settlement with the former minority shareholders of Augusta Technologie AG in the squeeze-out procedure. This settlement was lower than anticipated and therefore resulted in one-off untaxed income of € 2.1 million due to a partial release of the financial liability. The financial settlement will be completed in August. In addition to this, a release has been made of earn-out liabilities. On balance, there was an one-off income of € 3.5 million.
The tax rate declined to 18.6% in the first half of 2017, from 21.7% in the first half of 2016. The releases of the squeeze-out and earn-out liabilities is tax exempt and therefore reduced the overall tax rate. Normalized tax burden was 20.3% (H1 2016: 22.0%). Fiscal R&D incentives such as the Dutch innovation box facility had a lowering impact on the overall tax rate. With effect from 2017, TKH has agreed on a new innovation box arrangement with the Dutch Tax Authorities that is in line with the revised innovation box regime. This arrangement is effective through 2022 and offers fiscal benefits comparable to the previous arrangement.
Net profit before amortization and one-off income and expenses attributable to shareholders rose by 10.0% to € 45.1 million in the first half of 2017 (H1 2016: € 41.0 million). Net profit was up 21.0% at € 43.4 million in the first half of 2017 (H1 2016: € 35.9 million).
Net bank debt, calculated in line with the bank covenants, increased by € 56.9 million to € 223.0 million compared to year-end 2016. This increase was related to the dividend pay-out, investments and higher working capital. Working capital was higher due to seasonal influences. Working capital as a percentage of turnover had increased to 14.5% at end-June 2017, from 13.4% at year-end 2016. The net debt/EBITDA ratio came in at 1.2, which means that TKH is operating well within the financial ratio agreed with the company’s banks. Solvency amounted to 43.7% in the first half of 2017 (H1 2016: 44.2%).
The number of employees with a permanent contract (FTEs) stood at 5,766 at end-June 2017 (end-June 2016: 5,433 FTEs). In addition, TKH had a total of 491 temporary employees at end-June 2017 (end-June 2016: 405).
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 fiber 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.