Alexander van der Lof, CEO of technology company TKH: “The strong growth in both turnover and result in the first half year is the direct result of the strategy we launched, aimed at translating unique technologies into smart solutions for our customers. The growth we expected is now materializing as planned and we are clearly gaining benefits from the focus on our four core technologies and seven vertical growth markets. Strict investment discipline has helped us to substantially improve our market position in recent years and our start-up costs have gradually normalized. In anticipation of further turnover growth, costs are still outpacing income in the subsea (Marine & Offshore) and CEDD airfield ground lighting (Tunnel & Infra) segments. ROS increased to 11.4% in the first half of the year, which means we are well on track to realize our medium-term ROS target of 12-13%.”
Financial developments second quarter
Turnover in the second quarter of 2018 was € 49.2 million higher (+13.5%) at € 414.7 million (Q2 2017: € 365.4 million). Acquisitions accounted for 0.4% of the increase. Higher raw materials prices accounted for an increase of 0.9% in turnover. On average weaker foreign currencies against the euro had a negative impact of 0.8% on turnover. On balance, turnover increased organically by 13.0%. The increase in turnover in the second quarter was realized primarily in Building Solutions and Industrial Solutions. These segments recorded organic growth of 11.8% and 18.2% respectively.
The operating result before amortization of intangible non-current assets and one-off income and expenses (EBITA) increased by 51.7% to € 47.1 million in the second quarter of 2018 (Q2 2017: € 31.0 million). The EBITA at Telecom Solutions, Building Solutions and Industrial Solutions was higher than in the second quarter of 2017. Due to to a higher turnover, TKH operated more cost-efficiently. The start-up costs for investments in new technology, expansion of production capacity and market positioning declined considerably when compared to the same period of last year.
TKH recorded a ROS of 11.4% in the second quarter of 2018 (Q2 2017: 8.5%).
Net profit before amortization and one-off income and expenses attributable to shareholders was 55.6% higher at € 30.8 million (Q2 2017: € 19.8 million). Net profit increased by 33.4%.
Financial developments first half year
Turnover increased by 12.0% to € 812.6 million in the first half of 2018 (H1 2017: € 725.5 million). Organic turnover growth amounted to 11.9%. Higher raw materials prices accounted for an increase of 0.6% in turnover, while on average weaker foreign currencies against the euro had a negative exchange impact of 1.1% on turnover. Acquisitions accounted for turnover growth of 0.6%. All segments contributed to the growth in turnover.
The gross margin remained unchanged at 45.6% (H1 2017: 45.6%).
Operating expenses were 6.8% higher than in the first half of 2017. This increase was largely due to higher production levels. The operating expenses of the acquisitions accounted for a 0.8% increase in costs. As a percentage of turnover operating expenses declined to 34.2% in the first half of 2018, from 35.8% in the same period of 2017. Depreciation amounted to € 13.5 million in the first half of 2018, up from € 11.9 million in the first half of 2017. This is due to a high investment level over the past few years.
The operating result before amortization of intangible non-current assets and one-off income and expenses (EBITA) was 31.4% higher at € 92.9 million in the first half of 2018, compared with € 70.7 million in the first half of 2017. Compared to the first half of 2017, EBITA was up 41.4% at Telecom Solutions, up 28.0% at Building Solutions and 27.4% higher at Industrial Solutions.ROS was higher in the first half of 2018 at 11.4% (H1 2017: 9.7%).
Amortization costs increased by € 0.4 million, due to higher R&D investments over the past few years.
The financial result improved by € 0.6 million due to the fact that a number of interest rate swaps expired at the end of 2017, as a result of which TKH was able to benefit from the lower interest rate levels in 2018. However, this was offset by negative currency effects of € 0.6 million. The result from other associates increased by € 0.6 million.
The effective tax rate increased to 23.7% in the first half of 2018, from 20.4% in the first half of 2017, partly due to higher profits in countries with a higher tax rate. In addition, the Dutch government has raised the tax rate for the innovation box facility to 7% from 5% effective 1 January 2018.
Net profit before amortization and one-off income and expenses attributable to shareholders rose by 35.1% to € 60.7 million (H1 2017: € 44.9 million). Net profit growth was 26.9% to € 54.9 million (H1 2017: € 43.3 million; net profit of the first half of 2017 was impacted by one-off untaxed income totaling € 3.6 million).
Net bank debt calculated in line with the bank covenants increased by € 99.9 million from the year-end 2017 figure to € 257.7 million. This increase was related to the dividend pay-out, acquisition of the non-controlling interest held by third parties in Commend International, investments and higher working capital. Working capital as a percentage of turnover increased to 16.4% (mid-2017: 14.6%). The Net debt/EBITDA ratio was 1.3, which means that TKH is operating well within the financial ratio agreed with its banks. Solvency stood at 43.1% (H1 2017: 43.7%).
The number of employees with a permanent contract (FTEs) stood at 6,129 at 30 June 2018 (mid 2017: 5,766 FTEs). In addition, TKH had a total of 543 temporary employees at 30 June 2018 (mid 2017: 491).
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 network hubs.