2007

1 November 2007

TenCate net profit increases by 13% to € 30.5 million up to and including third quarter

TenCate net profit increases by 13% to € 30.5 million up to and including third quarter
 -Expected profit growth 2007 remains at least 25% excl. results on divestments

  • Corporate sales up to and including September € 660 million (+10%)
  • Operating result (EBIT) € 48.3 million (+20%)
  • Growth of net profit 13% to € 30.5 million, adjusted for result on divestments
  • Increase in net profit adjusted for amortization (cash earnings) 21%
  • Strong growth in sales of Defender™ M in the US (American army)
  • Sales in antiballistics up to and including third quarter are lagging behind; higher deliveries in fourth quarter are secured
  • Deliveries to Airbus (CETEX®) will get under way again in fourth quarter
  • Continuing restraint in American market for geosynthetics
  • Expansion of production capacity for synthetic turf has led to temporarily higher production and quality costs (Netherlands)

Developments in the third quarter 2007
Sales in the third quarter increased by more than 15% to € 233 million (autonomous +13.3%). The currency effect amounted to – 4.6%.

There was above-average growth in fire-resistant fabrics (including TenCate Defender™ M and TenCate TecaSafe®).
Sales of personal and vehicle protection (antiballistics) fell behind in the third quarter too. In the fourth quarter there will be a strong catch-up effect, as a result of which the year in this segment will end well.

In a cautious market, sales of geotextiles (geosynthetics) in the United States remained stable. Ongoing sales growth was generated in Asia and Europe.
In the Netherlands there was a considerable expansion and reconstruction operation in synthetic turf production this year. This involved some start-up problems and it has not produced the required output.

In the third quarter the operating result increased by 9% to € 18.4 million (autonomous – 1%). The autonomous decline can mainly be attributed to the Geosynthetics & Grass sector. The reticent American economy resulted in lower profit margins at TenCate Geosynthetics. The machine fleet at the Grass group in the Netherlands, which is not functioning to its maximum, exercised a considerably negative effect on the result. The production of synthetic turf yarns in Dubai (TenCate Thiolon Middle East) was in line with expectations.

The continuing weakening of the dollar resulted in a currency effect on EBIT level of – 6.7%.
The net profit (excl. result on divestments) in the third quarter amounted to € 11.2 million (+ 3.6%).

Developments in the first nine months
Sales for the first nine months rose by 10% to € 660 million (autonomous +10.2%, currency effect – 4.2%). The operating result (EBIT) increased by 19.6 % to € 48.3 million (autonomous + 11.2%). The EBIT margin improved from 6.7% to 7.3%.

An amount of € 2.5 million (2006: € 0.4 million) was included in the operating result up to and including the third quarter for the amortization of intangible assets. Excluding this item, the operating result (EBITDA) increased by 24.5%.

The net profit before amortization and before the result on divestments (cash earnings) rose by 21%.

The reported net profit for the first nine months amounted to € 30.6 million. Adjusted for the result on divestments, net profit rose by 13% (autonomous +12.9%; currency effect - 2.4%) to € 30.5 million.

Earnings per share (adjusted for the result on divestments) increased by 4% to € 1.34.

Outlook
As regards the profit forecast for 2007 as a whole, a number of positive factors play a role in this:

  • the additional contribution of TenCate Thiolon Middle East in the fourth quarter;
  • the current orders for fire-resistant fabrics for the American defence market, which will be delivered up to the beginning of 2008;
  • a strong catch-up effect in orders for antiballistics in the fourth quarter.
  • deliveries of CETEX® for Airbus will get under way again in the fourth quarter.

Despite the sluggish growth in profit in the third quarter, TenCate stands by its statement for 2007 made earlier that net profit (adjusted for the result on divestments) is expected to increase by at least 25%, barring unforeseen circumstances.

Developments per sector

Advanced Textiles & Composites

(x € million)

Q3 2007

Q3 2006

to Sept 2007

to Sept 2006

Net sales

82.0

62.1

250.0

211.9

EBIT

7.9

3.6

24.6

14.7

EBIT margin (%)

9.6

5.8

9.8

6.9

Strong autonomous sales growth continued in the third quarter (+34.7%). The operating result more than doubled compared to the third quarter of last year. In autonomous terms, growth was as high as 133%. The order position offers good prospects until mid-2008.

In America and Europe TenCate has built up a leading position in protective fabrics. In addition to the positive developments in the US (fire brigade and army), there is growth in the industrial market in Europe.

As regards production in the Netherlands, TenCate will gradually streamline and modernize its production in order to further reduce costs.
The remaining part of the production of interlinings (Permess) in China will be closed, as it does not fit in our strategic portfolio. The financial effect of this is extremely limited.

The sales and results of TenCate Aerospace & Armour Composites will reach their peak in the fourth quarter. This has budgetary causes at customers in the field of defence. TenCate Armour Composites is a supplier of antiballistic materials on the European and Asian market for personal and vehicle protection and operates commercially as an integrated group. On the American market for antiballistics, TenCate currently still plays a relatively modest role. However, in view of the programmes communicated by the American government, there is strong market growth.

The deliveries for Airbus will get under way again in the fourth quarter. In 2008 sales for the A-380 will increase substantially; for the A-350 XWB too, TenCate will be involved as supplier of CETEX®.


Geosynthetics & Grass

(x € million)

Q3 2007

Q3 2006

to Sept 2007

to Sept 2006

Net sales

135.9

121.1

357.2

312.7

EBIT

11.2

12.8

24.4

24.7

EBIT margin (%)

8.2

10.6

6.8

7.9

In the Geosynthetics & Grass sector there was autonomous sales growth of 4.3% in the third quarter. The operating result was under strong pressure, with an autonomous decline of 32.1%. The geosynthetics activities outside the US and the synthetic turf activities of TenCate Thiolon Middle East provided some compensation.

Although the volume in the American market for geosynthetics is at approximately last year’s level, margins have declined. Moreover, there is a continual increase in the price of raw materials as a result of shortage and the effect of oil prices, which is putting margins further under pressure.

Outside the US, good progress is being made, although the market for large projects relating to geotextile solutions is at a lower level. For some large projects traditional solutions were selected, although our products are extremely environment-friendly and cost-saving. Now that governments are placing a greater focus on environmental aspects and sustainability, our products offer additional advantages in this field.

The synthetic turf market is showing considerable growth worldwide (+15%), although large regional differences do exist. In America, growth in volume remained limited to 10% and projects were transferred to 2008 because of inadequate production capacity in 2007 for certain types of synthetic turf fibres.

The Grass group implemented a major changeover at the end of 2006 / beginning of 2007, in view of the (future) growth of the synthetic turf market as a whole and the strong increase in demand for monofilament (MF) fibres in particular. The consequences of this process were felt most strongly in the production facility in the Netherlands. The production output has not reached the desired level as regards volume and costs.

The new product portfolio for this year, consisting of a larger share of MF fibres and combined fibre products (multifilaments), which integrate different functional characteristics, made adjustments necessary within the production processes.

The acquisition of TenCate Thiolon Middle East resulted in TenCate being able to secure a large part of the increased demand for MF products in 2007. In the year 2008 the product portfolio and the prices policy will globally be harmonized.

Furthermore, for 2008 a plan will be drawn up for the Grass group as a whole so as to be able to serve the global market to maximum effect from three production locations. In this connection, an investment plan has been approved for a substantial capacity expansion in the US and Dubai. In 2008 TenCate Thiolon Middle East will be the largest production facility within the Grass group. This plan is intended to result in considerably higher results in 2008.


Technical Components / Holding & Services

(x € million)

Q3 2007

Q3 2006

to Sept 2007

to Sept 2006

Net sales

15.4

18.9

52.4

75.1

EBIT

-0.7

0.5

-0.7

1.1

The developments in respect of TenCate Enbi’s sales and result are positive, although the picture in the different geographical areas is varied. TenCate Enbi is the only company in the sector that operates on three continents in the printer and copier market. The core of this market is shifting more and more to Asia. TenCate Enbi is active here from Singapore and Zhuhai (China), where growth is being generated.

The decline in the sales of the Technical Components / Holding sector has mainly been caused by the divestment of Plasticum in 2006. Apart from currency effects, TenCate Enbi’s sales remained virtually unchanged.
 
Other financial information
The tax rate for the first nine months decreased from 30.4% to 23.5%. This was in part caused by the one-off tax gain and the zero rate that applies to TenCate Thiolon Middle East, as mentioned in the previous publication.

The investment level for the year as a whole will amount to approx. € 60 million. This amount is related to the investments the production of synthetic turf and composites and building a second geosynthetics factory in Asia (Zhuhai, China).

The increased working capital is linked in particular to the orders to be delivered in antiballistic materials and fire-resistant fabrics (American army).

The net interest-bearing debt amounts to € 235.3 million (end of the second quarter:
€ 245.8 million). The debt position is still expected to improve somewhat in the fourth quarter, as a result of seasonal influences.

Download: Q3 eng plus appendices
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