Alexander van der Lof, CEO of technology company TKH: “The past few months have been turbulent due to the COVID-19 outbreak. The health of our employees and the continuity of our activities were our main priority during this period. Although the impact has been considerable, we have come through the past few months reasonably well. Thanks to the solid progress we booked with our ‘Simplify and Accelerate’ program, we succeeded in increasing our gross margin and maintaining our ROS at virtually the same level as last year, despite a decline in turnover. In a number of markets, such as Tire Building and Parking, TKH has been affected by the consequences of the COVID-19 outbreak. We expect to feel the effects to continue in the coming period. TKH anticipated in time by reducing operational costs. On the other hand, the investments in innovation are paying off and will enable TKH to record growth in a number of key markets. Examples include the large orders we have won for subsea connectivity systems in offshore wind projects, Airfield Ground Lighting (CEDD/AGL) for Istanbul Sabiha Gökçen Airport and 3D vision technology for 5G consumer electronics. We also made a breakthrough with our medicine dosage and dispensing system, and thanks to specific interest we were able to initiate a large-scale roll-out of our high-quality Indivion system. In the coming months, we will continue to see (macro-economic) uncertainties, which will affect TKH the most in Industrial Solutions. Thanks to our innovations and our focus on growth markets, we still have good prospects for value creation in the medium term. It goes without saying that TKH will closely monitor developments and take measures where necessary."
The COVID-19 outbreak has had a negative impact on TKH’s turnover and results since the start of the outbreak.
The lockdowns in France, Italy and the US in April and May, for instance, had a major impact on our operations.
From June onwards, following the easing of restrictions in these countries, we did see a resumption of deliveries, but not yet back to previous levels. The activity levels in China have recovered since March, COVID-19 had only a limited impact.
We introduced a large number of measures to monitor and prevent the impact of the COVID-19 virus, including:
- In the various countries where we are active, we took all the required measures in accordance with the guidelines of the (local) authorities to safeguard a healthy working environment for our employees, as well as the continuity of our company.
- Where necessary and when deemed appropriate, we made use of any government support and working time reductions. The impact of COVID-19-related government subsidies on the result in the first half of the year was limited to € 1.3 million.
- Increased attention to working capital management, limitations of investment levels where possible and cost saving measures.
The measures we introduced to provide a safe and healthy working environment resulted in lower productivity and utilization levels at our manufacturing companies. In addition, there was an impact of reduced demand, as customers had less capacity available to realize projects. In a number of market segments, investments were reduced and/or postponed. This was particularly evident with respect to investments in airports and parking garages and in the industrial sector.
Financial developments first half
Turnover fell by 9.9% to € 679.0 million in the first half of the year (H1 2019: € 753.2 million). On an organic basis, turnover fell by 7.5%. Raw materials prices and currency effects had a negative impact of 0.4% on turnover. Acquisitions added 2.9% to turnover, while divestments had a negative impact of 4.8%. Turnover declined organically in all segments, although this was limited in Building Solutions.
The gross margin increased to 49.4% (H1 2019: 47.4%). TKH realized this increase in Building Solutions. Divestments and acquisitions also had an impact on the gross margin.
Operating expenses declined by 4.7% compared with the first half of 2019. The implemented integrations, cost savings and reduced cost of sales due to lockdowns, accounted for a significant share of the cost reductions. However, as a percentage of turnover, operating expenses increased to 39.3% in the first half of 2020, from 37.1% in the first half of 2019. The relative increase is related to the divestments in 2020 and lower productivity and utilization at our manufacturing companies as a result of COVID-19. Depreciations came in at € 22.9 million, € 0.6 million above the level in the first half of 2019, due to the higher investment levels in recent years.
Operating result before amortization of intangible assets and one-off income and expenses (EBITA) declined by 11.0% to € 69.0 million in the first half of 2020, from € 77.6 million in the first half of 2019. Building Solutions’ EBITA was 25.2% higher. Telecom Solutions and Industrial Solutions saw EBITA decline by 23.1% and 35.7% respectively.
ROS remained virtually unchanged at 10.2% in the first half of 2020 (H1 2019: 10.3%) due to an improvement of the gross margin and a lower cost level.
Amortization costs rose by € 3.8 million due to the acquisitions in the second half of 2019, as well as the high level of investments in R&D in recent years. TKH recognized an impairment of € 1.5 million in the first half of the year due to COVID-19.
TKH’s financial result improved by € 3.2 million, mainly as a result of a book profit on divestments.
The tax rate increased to 25.3% in the first half of 2020, from 23.2% in the first half of 2019, primarily due to divestments and lower profits at companies that charge lower tax rates.
Net profit from continued operations before amortization and one-off income and expenses attributable to shareholders declined by 21.6% to € 36.0 million (H1 2019: € 45.9 million). Net profit fell by 38.0% to € 26.6 million (H1 2019: € 42.8 million).
Net bank debt, calculated in accordance with the bank covenant, increased to € 357.6 million, up € 57.0 million from year-end 2019. This increase was primarily due to the dividend paid out, higher working capital and investments, but was partly offset by the proceeds from divestments. Working capital as a percentage of turnover increased to 16.6% (mid-2019: 16.5%). The postponement of the delivery of various projects, particularly in the Industrial Solutions segment, due to lockdowns at customers increased working capital by approximately € 40 million. At the same time, the deferral of tax payments obtained as at 30 June had an impact of € 22 million.
The Net debt/EBITDA ratio stood at 1.9 at end-June 2020, which means that TKH was operating well within the financial ratio agreed with its banks. Solvency amounted to 40.5% (H1 2019: 36.9%).
The number of permanent employees (FTEs) stood at 5,692 at 30 June 2020 (end 2019: 5,980 FTEs). In addition, TKH had 265 temporary employees at 30 June 2020 (end 2019: 310).
Developments per solutions segment
Telecom Solutions encompasses the core technologies connectivity, vision & security and mission-critical communications. TKH develops, produces and supplies systems ranging from basic outdoor infrastructure for telecom and CATV networks through to indoor home networking applications. Around 40% of the portfolio consists of optical fibre and copper cable for hub-to-hub connectivity. The remaining 60%, consisting of components and systems in the field of connectivity and peripherals, is deployed primarily in network hubs – share in turnover 14.0%