22 August 2007

TenCate publishes results H1 2007

TenCate operating result continues to grow strongly in second quarter (+27%)
  • Sales H1 2007: € 426 million (+7%; organic +9%)
  • EBIT H1 2007: € 29.9 million (+27%; organic +19%)
  • EBIT margin 7.0% (H1 2006: 5.9%)
  • Net profit H1 2007: € 19.4 million (+20%, excluding the result from divestments)
  • Influence of profit contribution from recent acquisitions not fully visible due to revaluation and higher amortisation/depreciation (under IFRS); result consequently € 1.1 million lower
  • Strong performance by market group TenCate Protective Fabrics
  • Sales in market group TenCate Aerospace & Armour Composites down due to deferment of projects to second half of 2007
  • Slight recovery of US geosynthetics market; good market developments in Asia and Europe
  • Start-up costs for substantial capacity increase and associated logistical adjustments in synthetic turf production; strong contribution by TenCate Thiolon Middle East
  • Strong second half of 2007 expected; profit growth for 2007 as a whole expected to be at least 25% (excluding result on divested activities)

General performance in second quarter of 2007
Sales rose in the second quarter by 13% to € 235 million. The increase in sales was due in particular to the excellent performance by the TenCate Protective Fabrics market group. On the basis of new products and its technological capacity, TenCate has been successful with protective fabrics, especially for the US Army (Gen 2 / Defender™ M).

The sales of the market group TenCate Aerospace & Armour Composites continued to lag expectations. An important element of the sales from project orders will however accrue in the second half of the year.

In the synthetic turf sector, start-up costs were incurred in relation to the sizeable increase in capacity, which involved logistical adjustments in the Netherlands. TenCate Thiolon Middle East came up to expectations and made a strong contribution.

The American market for geosynthetics staged a slight recovery at the end of the quarter.

The profit contribution of the recent acquisitions (Roshield and Mattex) in the second quarter was adversely affected by the introduction of IFRS accounting requirements. On the one hand the revaluation of acquired stocks led to (one-off) pressure on margins, while on the other the fair-value determination of tangible and intangible assets resulted in an increase in amortisation / depreciation charges of € 1.1 million.

The operating result rose by 27% from € 15.0 million to € 19.0 million. Organic growth amounted to 14%. The net profit in the second quarter (excluding the result from divestments) rose by 22% to € 13.3 million (2nd quarter 2006: € 10.9 million).

First half of 2007
Sales in the first half of the year amounted to € 426 million (organic +9%). The currency effect on sales amounted to -4%. The operating result rose to € 29.9 million (+27%, of which 19% organic). The currency effect on the operating result amounted to -7.5%. In addition the EBIT margin improved to 7.0% (H1 2006: 5.9%).

The net profit, adjusted for divestments, rose by 20% from € 16.1 million to € 19.3 million. The currency effect on the net profit amounted to -5%. Adjusted for the above mentioned additional amortisation and depreciation charges as a result of acquisitions, net profit (‘cash earnings’) rose by 26.7%.

Earnings per share (adjusted for the result from divestments) rose by 10% to € 0.85. During the first half of the year the share capital increased by 2,492,866 ordinary shares due to a share issue and the stock dividend. There are at present 23,556,158 shares in issue.

TenCate is maintaining its previously issued forecast for 2007, under which the net profit (adjusted for the results on divestments) is expected to increase by at least 25% barring unforeseen circumstances.

The expectations for the second half of 2007 are positive. Strategically TenCate operates in growth markets, in which significant acquisitions have been made. With its focus on core markets TenCate has leading positions in these market niches.

In the case of the sector Geosynthetics & Grass and the market group TenCate Aerospace & Armour Composites, higher sales and an increased profit contribution are expected in relation to the first half of the year.

The market for protective and safety fabrics is also expected to continue developing strongly in the second half of 2007. After the three previously announced US Army orders, the US Marine Corps has now also selected the Defender™ M fabric for fire-resistant protection.

Performance by sector

Advanced Textiles & Composites

(x € m.) Q2 2007 Q2 2006 H1 2007 H1 2006
Net sales 84.8 71.9 168.0 149.8
EBIT 8.7 5.2 16.7 11.1
EBIT margin 10.3% 7.2% 9.9% 7.4%

The sector Advanced Textiles & Composites displayed strong (+14%) organic growth during the first half of 2007. In view of the previously announced US Army orders, the growth in the field of innovative safety fabrics may be regarded as exceptional. On the basis of the technological and innovative know-how available within the group the market for safety fabrics is also being developed further by TenCate in Europe. The first orders were recently received for high-grade fire-resistant fabrics (Millenia Light™) for the European firefighting market. Demand for fire-resistant protection is also growing for military applications outside the United States; the market potential is considerable. It will not, however, be possible to respond properly to the demand until the raw material suppliers have expanded their production capacity.

Sales saw a general trend towards higher quality, which is positive for margin growth.

Partly through acquisitions, TenCate has substantially strengthened its position as a material supplier in the aerospace and armour core markets. In the field of antiballistics (armour composites) delays were encountered with order fulfilment. TenCate has strengthened its position in the UK market, resulting in an order for vehicle armour. This order will be delivered in the second half of this year. Other important orders are also scheduled for delivery in the second half of the year. The main focus of sales in the field of antiballistics will therefore be in the second half.

In the field of aerospace composites the expectations are positive. A substantial expansion of the production capacity for TenCate CETEX® will be achieved in the second half of this year in order to meet the growing demand for this material for the Airbus A380. The Boeing sales element will also grow in importance in the medium term. TenCate CETEX®, which was certified by Boeing several years ago, is being applied in both interior and structural elements in Boeing aircraft, especially the latest 737 and 777 models. CETEX® will also be used in the interior of the Boeing 787 (Dreamliner) and, thanks to recent developments, also in elements of the aircraft structure such as hull and wing sections. The material is delivered both directly and to first-tier partners in the US, Europe and Japan.

The recent announcement of the acquisition of Phoenixx represents a strengthening of the developments in thermoplastic composites for the aviation sector. The acquisition was completed after recent approval by the United States government.

Geosynthetics & Grass

(x € m.) Q2 2007 Q2 2006 H1 2007 H1 2006
Net sales 132.8 112.1 221.3 191.6
EBIT 10.7 9.5 13.2 11.9
EBIT margin 8.1% 8.5% 6.0% 6.2%

The organic growth of sales by the sector Geosynthetics & Grass amounts to 8%. Margins are under pressure by the shrinking market for geosynthetics in the United States on the one hand and by a temporary reduction of efficiency in synthetic turf production on the other. The latter was brought about by a sharp increase in production capacity and the associated logistical conversion in the Netherlands, which was coupled with start-up costs. The adaptations in production were effected in the course of the first half of 2007.

The acquisition of Mattex (TenCate Thiolon Middle East) at the end of March this year represents a substantial strengthening and brings forward the growth opportunities created by the strong increase in worldwide demand for monofilament fibres.

The synthetic turf division operates worldwide as a single integrated group, taking full advantage of economies of scale. The market for the Grass group is characterised by the buoyant growth of an evolving market. Since 2006 the demand for monofilament fibres has grown extremely strongly.

The scale that TenCate has now achieved in the production of synthetic turf fibres has resulted in a more balanced product portfolio. This enables improvement of the margin.

The EBIT margin for the sector as a whole fell to 6%. The fall was primarily attributable to the Geosynthetics market group, reflecting the weaening in the United States market since mid-2006.

Sales and margins in the US geosynthetics market are staging a slight recovery, although this is still at an early stage. Market conditions in Asia and Europe are substantially more positive.

Technical Components / Holding & Services

(x € m.) Q2 2007 Q2 2006 H1 2007 H1 2006
Net sales 17.8 24.4 37.0 56.2
EBIT -0.4 0.3 0.0 0.6

Turnover and operating result of this group have been influenced by the desinvestment of TenCate Plasticum and Business Key. Following the sale of these companies in the Technical Components sector, TenCate Enbi was added to the Holding & Services sector for financial reporting purposes. TenCate Enbi accounts for less than 10% of group sales.

For TenCate Enbi the market centres increasingly on Asia, where TenCate Enbi achieves a strong growth in sales. The extension of the customer base, particularly in Asia, and the broadening of the product portfolio on the basis of rubber and foam technology, are important strategic objectives.

In Europe and the United States sales fell in line with the structural changes in the existing market, but good progress was recorded with generating sales in new market segments.

The tax rate fell from 32.8% to 22.6%. One reason was a non-recurrent tax credit of € 1.3 million relating to previous years.

The investments in fixed assets of € 29 million are above the 2006 level (€ 25 million). The investments are primarily related to capacity build-up in Asia (geosynthetics) and capacity expansion (synthetic grass and composites).

The higher interest charges are due to the increased (average) debt position and the increase in interest rates. The net interest-bearing debt at 30 June 2007 amounted to € 246 million.

Almelo, 22 August 2007
Royal Ten Cate
For more information:
F.R. Spaan, head, investor relations & corporate communication
T +31 (0)546 544 338
M +31 (0)6 12961724
The complete statistical annex may be found on www.tencate.com

Audio webcast: commencement of presentation for the press 10.30 hours (in Dutch)
Conference call: 22 August 11.45 hours (CET); phone in from 11.30 hours
The telephone number for the conference call is +31 (0)20 7133497. An operator will explain the procedure.

Download: H1 2007 eng plus appendices
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