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MarketScreener Homepage  >  Equities  >  Euronext Amsterdam  >  Kendrion N.V.    KENDR   NL0000852531

KENDRION N.V.

(KENDR)
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Kendrion : Half-year results 2018

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08/15/2018 | 01:41am EDT

15 August 2018

Interim results 2018

Kendrion realises 9.8% EBITA margin and 16% profit growth in solid first half 2018

  • Revenue growth in HY1 2018 of 2% to EUR 239.6 million (HY1 2017: EUR 235.6 million)
    and 3% at constant rates of exchange
  • Normalised EBITA margin in HY1 2018 rises to 9.8% from 9.1% in HY1 2017
  • Normalised net profit of EUR 15.8 million in HY1 2018 (HY1 2017: EUR 13.7 million)
  • Additional simplification measures in Passenger Cars result in annualised savings
    of EUR 4.2 million, with corresponding one-off costs of EUR 5.9 million in HY1 2018
  • Revenue in Q2 2018 increases by 1% to EUR 119.0 million (Q2 2017: EUR 117.3 million)
  • Normalised EBITA growth of 7% to EUR 11.6 million in Q2 2018 (Q2 2017: EUR 10.8 million)
  • Normalised EBITA margin increases to 9.7% in Q2 2018 from 9.2% in Q2 2017
  • Kendrion announces Mid-Term Plan 2019 - 2023 with a Return on Investment target of at least 20% and an EBITDA margin of more than 15% by 2023

Key figures

(x EUR 1 million unless otherwise stated) Q2 2018 1 Q2 2018 2, 3 Difference in %
Revenue 119.0 117.3 1%
EBITDA 17.4 16.5 5%
EBITA 11.6 10.8 7%
Net profit 7.7 6.8 14%
ROS 9.7% 9.2%
(x EUR 1 million unless otherwise stated) HY1 2018 1 HY1 2017 2, 3 Difference in %
Revenue 239.6 235.6 2%
EBITDA 35.1 32.7 7%
EBITA 23.5 21.4 10%
Net profit 15.8 13.7 16%
ROS 9.8% 9.1%

1. Normalised for HY1 2018 non-recurring restructuring costs of EUR 5.9 million (after tax EUR 4.2 million); Q1 2018: EUR 1.1 million (after tax EUR 0.8 million); Q2 2018: EUR 4.8 million (after tax EUR 3.4 million)

2. Normalised for HY1 2017 non-recurring restructuring costs of EUR 2.0 million (after tax EUR 1.5 million); Q1 2017: EUR 1.2 million (after tax EUR 0.9 million); Q2 2017: EUR 0.8 million (after tax EUR 0.6 million)

3. Restated due to application of IFRS 9, IFRS 15 and IFRS 16 as per 1 January 2018.

Joep van Beurden, Kendrion CEO:
'We had a solid second quarter and first half of 2018. Normalised EBITA in the first six months totalled EUR 23.5 million. This is almost as high as our EBITA over the full year 2015 before we embarked on our 'Simplify, Focus, Grow' strategy in May 2016. As a percentage of revenue our normalised EBITA was 9.8%.

Our three Industrial business units and the Commercial Vehicles business unit performed well. Industrial Control Systems and Industrial Drive Systems benefited from high activity levels combined with a leaner organisation. In August, our Industrial Magnetic Systems business unit acquired a minority stake in Newton CFV, entering a strategic partnership in the USA with this new company for the development and manufacturing of innovative constant flow valves for the food and beverages industry.

Following a detailed review of the performance of our Passenger Cars business unit, we have taken several measures in the second quarter in order to further streamline the Passenger Cars Research & Development organisation and to address pockets of inefficiency. Our goal is to further improve the focus on the multitude of opportunities we have in Passenger Cars. We expect to have implemented all the measures by the start of 2019.

Several of our Passenger Cars customers have a significant backlog in test and validation procedures to comply with the new Worldwide Harmonised Light Vehicles Test Procedures (WLTP) for diesel engines. Combined with lower sales of diesel cars, this meant that Passenger Cars saw lower-than-expected revenue growth in the second quarter. We expect that to remain the case for the second half of this year.

On 27 July 2018 we entered into a new five-year EUR 150 million financing agreement with a consortium of three lenders (ING Bank, Deutsche Bank and HSBC) to refinance our existing financing arrangement.

We are confident about our strong business fundamentals, R&D capabilities, customer relationships and growing project pipeline. We expect to deliver our targeted underlying EBITA margin of 10% as from the end of 2018.

Going forward we expect to attain a Return on Investment of at least 20% in 2023 and an EBITDA margin by 2023 of more than 15% driven by a lean and streamlined business operation and accelerating organic growth.'

Progress in strategy

In May 2016 Kendrion initiated its strategy for 2016 - 2018 based on the 'Simplify, Focus and Grow' pillars, with the aim to deliver sustainable profitable growth for the business.

Our simplification measures focus on complexity reduction and cost-efficiency. Additional simplification measures were taken in our Passenger Cars business unit to further streamline its R&D organisation and to address pockets of inefficiency. Regarding the Passenger Cars R&D organisation, we have decided to close our R&D centre in Ilmenau and are creating a dedicated centre of excellence for sound, software and electronics in Malente.

The cost reductions and restructuring measures implemented in HY1 resulted in one-off costs of EUR 5.9 million, with corresponding savings on an annualised basis of EUR 4.2 million that are expected to mostly take effect as from 1 January 2019. We now expect one-off costs of around EUR 7.0 million with corresponding savings of EUR 5.5 million on an annualised basis for the full year 2018, which is well ahead of our previous guidance.

With respect to growth, the investments for additional capacity in both China and permanent magnet brakes for robotics are on track. With these investments, Kendrion is well positioned to handle the strongly expanding pipeline in these areas in the years ahead.

Financial review

Revenue

Q2 2018
Revenue in the second quarter of 2018 was 1.4% higher (2.4% at constant exchange rates) at EUR 119.0 million compared to the second quarter of 2017 (EUR 117.3 million). The Industrial activities grew by 3.9% (4.4% at constant exchange rates), while growth in Automotive was flat (+1.2% at constant exchange rates).

HY1 2018
Our Industrial activities posted 5.3% growth (6.1% at constant exchange rates) in revenue in the first half of 2018, primarily as a result of growth in Industrial Control Systems. Revenue of the Automotive activities decreased slightly by 0.3% (1.8% growth at constant exchange rates), mainly due to a slower second quarter for Commercial Vehicles. This resulted in overall revenue growth of 1.7% (3.3% at constant exchange rates) in the first half of the year.

Results

Q2 2018
Normalised operating result before amortisation (EBITA) increased by 7% to EUR 11.6 million (Q2 2017: EUR 10.8 million). A lower profitability in Automotive was more than compensated by the Industrial activities where higher activity levels amplified the positive effect of our simplification measures. Despite the higher activity level and wage inflation, staff costs and operating expenses were 4% lower than last year. The normalised EBITA margin improved in line with the increased normalised EBITA from 9.2% in Q2 2017 to 9.7% in Q2 2018.

HY1 2018
Normalised EBITA in HY1 2018 increased to EUR 23.5 million (HY1 2017: EUR 21.4 million), an increase of 10%. Normalised EBITA margin was 9.8% (HY1 2017: 9.1%) driven by a broad based increase in profitability in our Industrial activities.

Normalised EBITA for the Industrial activities increased to EUR 11.7 million from EUR 8.5 million in the same period last year. This increase was especially driven by Industrial Control Systems' improved performance combined with the effect of simplification measures.

The Automotive activities posted normalised EBITA of EUR 11.5 million, compared to EUR 13.3 million in HY1 2017. The decline in profitability is primarily attributable to pockets of inefficiency within the Passenger Cars business unit that are being addressed.

Net finance costs of EUR 1.5 million in the first six months of 2018 were slightly below the same period last year.

Normalised income tax expenses for HY1 2018 stood at EUR 5.0 million (HY1 2017: EUR 4.4 million). The normalised effective tax rate in the first six months of 2018 was 23.9% (HY1 2017: 24.3%), a slight improvement compared to last year due to a different country mix.

Normalised net profit in HY1 2018 was EUR 15.8 million (HY1 2017: EUR 13.7 million). Basic earnings per share amounted to EUR 1.18 (HY1 2017: EUR 1.02). Including restructuring costs, net profit in HY1 2018 amounted to EUR 11.6 million.

Financial position

The net debt position was EUR 78.7 million at the end of the second quarter. Excluding the effects of the adoption of IFRS 16, net debt amounted to EUR 63.6 million. The increase of EUR 5.3 million from the end of the first quarter was due to the cash dividend payment of EUR 5.8 million and our share buyback programme that resulted in a cash outflow of EUR 6.6 million. Kendrion completed the share buyback programme through which 178,852 ordinary shares were repurchased to neutralise the dilutive effect of the 2017 final stock dividend and share-based incentive plans on 29 June 2018. This was partly offset by the free cash flow of EUR 6.3 million. Free cash flow in the first six months amounted to EUR 4.3 million.

Capital expenditure totalled EUR 13.3 million in the first half of 2018, ahead of the depreciation level. Investments for the full year 2018 are expected to be higher than the depreciation level, largely due to new automotive projects and the capacity expansion in permanent magnet brakes for robotics.

Kendrion's financial position is strong, with a solvency ratio of 47.1% at the end of June 2018. Excluding the effects of IFRS 16, the solvency ratio is 49.2%.

New financing agreement

Kendrion entered into a new five-year EUR 150 million financing agreement with a consortium of three lenders (ING Bank, Deutsche Bank and HSBC) to refinance its existing financing agreement on 27 July 2018. The new financing arrangement will provide Kendrion with sufficient flexibility to achieve its growth objectives, while at the same time reducing the overall financing costs.

Number of employees

The number of employees (FTEs) at the end of the second quarter amounted to a total of 2,596, including 126 temporary employees (Q2 2017: 2,627 employees, including 127 temporary employees).

Operational performance

Industrial activities
The Industrial activities consist of Industrial Magnetic Systems, Industrial Control Systems and Industrial Drive Systems.

The higher activity level in the first quarter of 2018 continued during the second quarter for Kendrion's Industrial activities, which account for 36% of revenue. Revenue increased by 5.3% to EUR 85.6 million in HY1 2018 compared to HY1 2017 (EUR 81.3 million). Growth in Industrial Control Systems was particularly strong driven by higher demand for power heat controllers and increased demand from several customers in the medical segment.

All three business units increased their EBITA margin in the first half of 2018. In the case of Industrial Control Systems, this was the result of higher activity levels combined with simplification measures while Industrial Drive Systems benefited from a positive product mix with further growth in permanent magnet brakes. Industrial Magnetic Systems posted modest growth as broad-based revenue strength was partly offset by the loss of some smaller customers due to the closure of its Swiss manufacturing operations last year and a weaker performance by a major textile customer.

Industrial saw its normalised EBITA margin improve to 13.7% (HY1 2017: 10.5 %).

Automotive activities
The Automotive activities consist of Passenger Cars and Commercial Vehicles.

Automotive activities, which account for 64% of Kendrion's revenue, posted a slight decrease in revenue of 0.3% to EUR 154.0 million in the first six months of 2018 (HY1 2017: EUR 154.3 million). Within the Automotive market, Passenger Cars continued to benefit from the ramp-up of the production of the active damping valves for ThyssenKrupp Bilstein. Slower sales of diesel cars combined with the significant test and validation effort experienced by several important automotive customers to comply with the new Worldwide Harmonised Light Vehicles Test Procedures (WLTP) meant that Passenger Cars saw lower than expected revenue growth and a decrease in profitability in the second quarter. We expect the revenue impact to persist in the second half of this year.

Commercial Vehicles had a solid first half of 2018 and continues to improve its position in the market. Revenue decreased somewhat due to the closure of the operations in India and Mexico combined with certain temporary and customer-specific operational issues. The outlook for Commercial Vehicles continues to be good.

Automotive saw its normalised EBITA margin decrease to 7.5% (HY1 2017: 8.6%).

Strategic update

In addition to announcing its first half 2018 results, Kendrion is today announcing its strategic update for 2019 - 2023. Over the past two years we have simplified and refocused the company. This has significantly increased our profitability and has placed us in a good position to benefit from important and long-term trends. We intend to remain focussed on this for at least the next five years.

The primary objective will be to continue to deliver sustainable profitable growth for the business. We will retain our focus on resources and investments in Passenger Cars, specifically in the areas of electrification, autonomous driving, safety and comfort, on permanent magnet brakes for robotics and in China where we see and tap into healthy growth opportunities. Through the combination of continued disciplined cost management and accelerating organic growth, we expect to realise an ROI of at least 20% by 2023, up from 15% over the Last Twelve Months as per June 2018, and an EBITDA margin by 2023 of more than 15%.

Outlook

The overall environment for the global economy remains positive going forward. Kendrion's key market, Germany is expected to continue to perform well, which is reflected in a healthy German machine building index. Despite the aforementioned diesel constraints in Germany, affecting Passenger Cars, we expect revenue to increase in 2018, driven primarily by growth in the Industrial activities.

Going forward, we remain confident about our business fundamentals, with our main objective being to deliver sustainable profitable growth for the business in the medium to long term. We reiterate our expectation to deliver an EBITA margin of 10% as from the end of 2018.

Post-balance sheet events

On 3 August Kendrion acquired a 30% minority stake in Newton CFV, Inc., entering a strategic partnership in the USA with this new company for the development and manufacturing of innovative constant flow valves for the food and beverages industry.

Audio webcast interim results 2018 and Capital Markets Day

Kendrion CEO Joep van Beurden and CFO Frank Sonnemans will present the interim results on Wednesday, 15 August 2018 at 11:00 a.m. CET followed by Capital Markets Day presentations. A live audio webcast will be available via the company website www.kendrion.com with playback facilities.

Profile Kendrion N.V.

Kendrion develops, manufactures and markets high-quality electromagnetic systems and components for industrial and automotive applications. For over a century, we have been engineering precision parts for the world's leading innovators in passenger cars, commercial vehicles and industrial applications. As a leading technology pioneer, Kendrion invents, designs and manufactures complex components and customised systems as well as local solutions on demand.

We are committed to the engineering challenges of tomorrow, and taking responsibility for how we source, manufacture and conduct business is embedded into our culture of innovation. Rooted in Germany, headquartered in the Netherlands and listed on the Amsterdam stock exchange, Kendrion's expertise extends across Europe to the Americas and Asia. Created with passion and engineered with precision. Kendrion - we magnetise the world.

Declaration of the Board

The Executive Board declares that, with due regard for what has been described in this report, to the best of its knowledge, (i) the semi-annual financial statements give a true and fair view of the assets, liabilities, financial position and profits of Kendrion N.V. and the companies jointly included in the consolidation, and (ii) the semi-annual report gives a true and fair overview of the information required pursuant to Article 5:25d of the Netherlands Financial Supervision Act.

Zeist, 15 August 2018

The Executive Board

Annexes

For annexes we refer to the attached pdf document.

1. Financial calendar 2018 - 2019
2. Semi-annual financial statements 2018
2.1 Consolidated statement of comprehensive income
2.2 Consolidated statement of financial position
2.3 Consolidated statement of cash flows
2.4 Consolidated statement of changes in equity
2.5 Reconciliation of normalised to reported 2018 figures
2.6 Risks and risk management
2.7 Notes to the interim financial statements
2.8 Impact on interim financial statements adoption IFRS 9, IFRS 15, IFRS 16

Disclaimer

Kendrion NV published this content on 15 August 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 15 August 2018 05:40:03 UTC

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