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Interim results 2009 TKH Group NV

Interim results 2009: results improvement Q2 compared to Q1 despite further drop in turnover.
  • Turnover down 30% to € 353.5 million, with the effect of raw  materials prices   accounting for 4.5%.
  • Strongest turnover drop of 40% in Industrial Solutions.
  • EBITA before exceptional charges down 68.7% to € 13.8 million.
  • EBITA before exceptional charges improved 51% in Q2 compared   with Q1.
  • Exceptional charge of € 7.2 million in Q2 for reorganisations.
  • Strong cost reduction of € 9.3 million in Q2.
  • Strong cash flow of € 66 million from operating activities.
  • Strengthened balance sheet due to reduction of debt by € 44 million.
  • Outlook
  • Barring a further deterioration of the market conditions, the net   result before  exceptional charges is expected to improve in the second half of 2009.

 

 

 

 

 

Key figures first half year

(in € million unless otherwise stated)

 

1st half year 2009

1st half year

2008

Difference

as a %

Turnover

353.5

504.8

- 30.0

EBITA before exceptional charges

13.8

44.1

- 68.7

EBITA after exceptional charges

6.6

44.1

- 85.1

Net profit before amortisation1) and exceptional charges

4.4

27.1

- 83.6

Net profit

-2.6

25.5

 

Net earnings per ordinary share (in €)

-0.08

0.72

 

Solvency

43.6%

38.6%

 

ROS before exceptional charges

3.9%

8.7%

 

 

 

 

Key ratios second quarter figures

(in € million unless otherwise stated)

 

Q2

2009

Q2

2008

Difference

as a %

Turnover

165.0

249.6

- 33.9

EBITA before exceptional charges

8.3

23.9

- 65.3

EBITA after exceptional charges

1.1

23.9

- 95.6

Net profit before amortisation1) and exceptional charges

2.4

14.8

- 83.5

Net profit

-3.7

13.9

 

ROS before exceptional charges

5.0%

9.6%

 

1) Net result before amortisation of intangible non current assets related to acquisitions (after tax).

 

 

 

Alexander van der Lof, CEO of technology company TKH: “In our effort to counterbalance the difficult market conditions and the ensuing considerable drop in turnover, TKH has cut its costs drastically and reduced debts. Our main priority is a return to profitability, although we will continue to work on our innovative strength. Also in these days, 18.5% of our turnover still comes from new products. We are convinced that the current economic situation will result in opportunities to which we will be able to respond well with our innovative strength.”

 

 

 

Financial developments

 

Turnover in the first half of 2009 was down € 151.3 million (-30.0%) at € 353.5 million, (H1 2008: € 504.8 million). Of this reduction, 4.5% was due to the drop in raw materials prices passed on to customers. The companies acquired in 2008, Keyprocessor, Ithaca, AVO Techniek and VDG Security, contributed 2.0% to turnover. Turnover fell in all three solutions segments (Telecom, Building and Industrial Solutions), with Industrial Solutions showing the largest drop at 40%, due to the postponement of investments by customers in the industrial sector. This led to a decrease in the Industrial Solutions share in the turnover to 41%, from 48%. The share in turnover from Telecom Solutions increased from 17% to 21% and Building Solutions from 35% to 38%.

 

 

The gross margin as a percentage of turnover increased to 41.3% from 37.5%. This increase was caused by lower raw material prices and an improved mix of activities. The security activities in particular contributed to this increase. Operating costs excluding exceptional charges were down € 13.4 million in the first half of the year, with € 9.3 million of this drop being realised in the second quarter. The number of FTEs, including temporary staff, worldwide was reduced by 452 compared with year-end 2008. In addition, reduced working hours at a number of locations were introduced.

 

Depreciations, at € 8.1 million, were up compared to € 7.2 million in the first half of 2008, due to the investments in 2008 and the partial reversal of the impairment of the optical fibre activities at year-end 2008.

 

The operating result before amortisation of intangible assets (EBITA) and exceptional charges was down 68.7% at € 13.8 million in the first half of 2009, compared with € 44.1 million in the first half of 2008.

 

 

EBITA before exceptional charges in the second quarter of 2009 was up € 2.8 million (51%) compared with the first quarter of the year. However, turnover in the second quarter dropped by € 23.4 million (12.4%) compared with the first quarter. In line with the reorganisation programme of € 15 million for the entire year as announced in April, TKH took an exceptional charge of € 7.2 million in the second quarter. The main measures have been introduced in the Industrial Solutions segment. In the sub-segment manufacturing systems, the systems portfolio have been further reduced and the production locations will be concentrated in the Netherlands and China. Due to these restructuring measures the costs will be € 25 million structurally lower as of 2010, of which € 15 million will be realised in 2009. The total cost level will be reduced by around € 40 million in 2009.

 

The EBITA after exceptional charges was € 6.6 million.

 

 

The ROS before exceptional charges increased from 2.9% in the first quarter to 5.0% in the second quarter. All three solutions segments saw their results fall in the first six months, with Industrial Solutions showing the greatest drop.

 

The amortisation charge increased to € 4.3 million in the first half of 2009 (H1 2008: € 3.2 million), primarily as a result of the acquisitions and capitalised R&D in the past 12 months.

 

The financial income and expenses increased to € 5.6 million in the first half of 2009, from € 5.4 million in the same period of 2008. This increase was due to currency effects. There was a € 1.0 million tax gain due to the negative pre-tax result of € 3.7 million.

 

The net profit before amortisation and excluding exceptional charges was € 4.4 million in the first half of 2009 (H1 2008: € 27.1 million). This led to a net loss of € 0.8 million before amortisation and including exceptional charges. After amortisation and exceptional charges, the net loss was € 2.6 million in the first half of 2009 (H1 2008: € 25.5 million). Ordinary earnings per share were minus € 0.08 (H1 2008: € 0.72).

 

 

Net bank debt fell € 43.5 million compared with year-end 2008 to € 143.3 million in the first half, as a result of a targeted programme for the reduction of working capital and limitation of investment levels. Working capital as a percentage of turnover fell to 18.3%, from 20.4% in the first half of 2008. The solvency ratio increased to 43.6% (H1 2008: 38.6%). Despite the substantial drop in results, TKH is operating well within the financial ratios as laid down in the loan agreements, also because of the reduced debt burden. The net debt/EBITDA ratio was 2.5 and the interest coverage ratio was 6.4 (including exceptional charges).

 

The net cash flow from operational activities was € 65.9 million (H1 2008: € 10.5 million), primarily as a result of strongly reduced working capital.

 

The number of employees under contract (FTEs) as of 30 June 2009 was 3,700.

 

 

 

Developments per solutions segment

 

 

Telecom Solutions

Profile

Telecom Solutions develops, produces and supplies systems for a variety of applications, ranging from outdoor basic infrastructure for telecom and CATV networks up to and including indoor home networking. The focus is on supplying systems accompanied by guarantees that relieve the customer of any concern. Roughly 40% of the portfolio consists of optical fibre and copper cable for node-to-node connections. The other 60%, chiefly accounted for by components and systems relating to connectivity and peripherals, is mainly used in the network nodes.

 

 


Key ratios first half year Telecom Solutions

(in € million unless otherwise stated)

 

1st half year 2009

1st half year

2008

Difference

as a %

Turnover

74.0

87.9

- 15.8

EBITA before exceptional charges

8.8

12.3

- 28.4

ROS before exceptional charges

11.9%

14.0%

 

 

 

 

Turnover in the Telecom Solutions segment fell to € 74.0 million in the first half of 2009. Turnover dropped by 1.0% due to lower raw materials prices. The turnover in optical fibre systems rose slightly, while the turnover in indoor telecom systems and outdoor copper network systems fell.

 

EBITA before exceptional charges fell to € 8.8 million in the first half of 2009. Purchasing costs rose due to an increase in the value of Asian currencies, which had a negative impact on the operating result. The impact on the margin was limited by a reduction in costs. Depreciations rose in the first half of 2009 as a result of the partial reversal of the impairment on the optical fibre activities at year-end 2008.

 

 

Indoor telecom systems: home networking systems, broadband connectivity, IPTV software solutions

Turnover fell by 24.8% as a result of lower spending levels among consumers on upgrading peripheral equipment for broadband connections. Lower activity in the construction sector in Europe also had a negative impact on investments in this segment.

 

 

Fibre network systems: optical fibre, optical-fibre cable, connectivity systems and components, active peripherals

Turnover rose slightly by 3.8%. In Europe, demand fell by around 10%, while in China the demand for optical fibre systems increased. The investment priority for optical fibre networks continued to increase, which led to a further shift in investment from copper networks to optical fibre networks.

 

Capacity utilisation in the optical fibre production was high. TKH carried out a number of optimisations, which increased capacity by 15%. The increased value of Asian currencies led to a rise in purchasing costs, which led in turn to a drop in the margin.

 

 

Copper network systems: copper cable, connectivity systems and components, active peripherals

Due to the fact that telecom companies are limiting their investment levels and there has been a shift towards optical fibre networks, the turnover in this segment fell by 27.3%. The cut in investments in the maintenance of the network nodes also had a negative impact on turnover.

 


Building Solutions

 

Profile

Building Solutions develops, produces and supplies solutions ranging from efficient electrical engineering for applications in buildings to technical systems which, linked to software, provide greater efficiency for the health care and security sectors. The know-how is concentrated on connectivity systems in connection with efficiency-enhancing solutions that shorten the time needed to make installations in buildings. TKH also focuses on intelligent video, intercom and access control systems for a number of specific sectors, including care of the elderly, parking and security of buildings and grounds.

 

 

Key ratios first half year Building Solutions

(in € million unless otherwise stated)

 

 

1st half year 2009

1st half year

2008

Difference

as a %

Turnover

134.4

173.7

- 22.7

EBITA before exceptional charges

4.7

14.1

- 66.7

ROS before exceptional charges

3.5%

8.1%

 

 

 

 

Turnover in the Building Solutions segment fell in the first half to € 134.4 million. Turnover fell by 5.6% due to the effect of raw materials prices. The most significant drop was seen in the connectivity segment. The security segment realised a rise in turnover, partly due to the acquisitions of Keyprocessor and VDG in 2008. Turnover in the second quarter of 2009 improved when compared with the first quarter of 2009.

 

EBITA before exceptional charges fell to € 4.7 million. This drop was seen primarily in the sub-segments connectivity systems and building technologies. The sub-segment security systems realised an increase in result.

 

 

Building technologies: energy-efficient lighting systems, energy management systems, health care systems, structured cabling systems

Turnover in building technologies fell by 19.8%, mainly in the structured cabling systems segment, due to lower activity in the construction sector. Due to the increase in turnover in domotic solutions, aimed for example at the reduction of energy use and increasing the efficiency in the care sector, TKH was able to offset the drop in turnover to some extent.

 

 

Security systems: systems for CCTV, video/audio analysis and detection, intercom, access control and registration, central control room integration

Turnover was up by 10.1%, largely due to the acquisitions of Keyprocessor and VDG in 2008. TKH was able to gain market share, thanks to the newly opened locations and distinctive technology, which did offset the drop in market demand. The share of security systems in the turnover rose approximately 11%.

 


Connectivity systems: specialty cable (systems) for ship building, railways, infrastructure, solar and wind energy and installation and energy cable for niche markets.

Turnover fell by 35.5%, mainly in the first quarter due to inventory reductions at customers and the harsh winter period. Turnover recovered somewhat in the second quarter and a better result was realised. Due to the fact that a large part of the activities in this segment are linked to infrastructural projects, the harsh winter period had an above-average impact.

 

 

 

Industrial Solutions

 

Profile

Industrial Solutions develops, produces and supplies solutions ranging from specialty cable and 'plug and play' cable systems to integrated systems for the production of tyres for cars and trucks. With its know-how in the field of the automation of production processes and improving the reliability of production systems, TKH stands out in its ability to respond to the growing wishes of a number of specialists industrial sectors, such as the tyre manufacturing, robot, medical and machine industries, to increasingly outsource the construction of production systems or modules.

 

 

Key ratios first half year Industrial Solutions

(in € million unless otherwise stated)

 

 

1st half year 2009

1st half year

2008

Difference

as a %

Turnover

145.1

243.2

- 40.3

EBITA before exceptional charges

4.2

22.7

- 81.6

ROS before exceptional charges

2.9%

9.3%

 

 

 

 

The turnover in the Industrial Solutions segment decreased to € 145.1 million in the first half of 2009. Turnover fell by 4.9% due to the effect of raw materials prices. Turnover fell in both connectivity systems and manufacturing systems. The activities within Industrial Solutions are strongly linked to capital goods, especially in robot and machine building and the tyre manufacturing industries. Investment levels have been sharply reduced in these sectors.

 

Before exceptional charges, EBITA fell to € 4.2 million the first half of 2009. Due to the very strong and sudden drop in turnover, it was not possible to fully adjust cost levels to lower levels of activity, which caused that the impact on results of the drop in turnover was disproportionate.

 

 

Connectivity systems: specialty cable systems and modules for the medical, robot, automotive and machine industries

The turnover in cable systems and specialty cables fell by 42.0%. The activities related to the robot industry and the machine building industry in Germany were hit especially hard by the extremely low investment levels and the postponement of deliveries in these sectors.

 


Manufacturing systems: advanced manufacturing systems for the production of car and truck tyres, can washers, product handling systems and machine operating systems

Due to the postponement of deliveries and very low order intake, turnover also fell substantially by 38.0% in this sub-segment. The tyre manufacturing business, which accounts for more than 80% of the activities in this sub-segment, saw an strong drop in deliveries and order intake. Order intake improved in the second quarter but remained low.

 

 

Outlook

 

The economic conditions will remain uncertain. The reduction of costs levels and the continued reduction of debt have a high priority for TKH. TKH will also push for adopting new market positions by means of innovations and reinforcing commercial efforts in the three solutions segments.

 

If market conditions do not deteriorate further in the second half of the year, the net result before exceptional changes will improve compared with the first half of 2009, partly due to the effects of the measures TKH has taken. The debt level will be further reduced with at least € 25 million in the second half of 2009.

 

 

For the complete press release, including the financials, we refer to the attached PDF document