Highlights of first half of 2010
- Sales up 5% to €454.6 million (4% organic; 1% currency effect)
- EBITA €38.2 million (+83%; organic 89%; +7% currency effect; -13% acquisitions/divestments)
- EBITA margin 8.4% (first half of 2009: 4.8%)
- Net profit €19.6 million (2009: €10.0 million, after adjustment for non-recurring items)
- Strong profit recovery in the Geosynthetics & Grass sector due to cost control and efficiency measures
- Debt/EBITDA ratio 2.7
- Sales of TenCate Defender™ M expected to return to original level in second half of 2010
Loek de Vries, Executive Board Chairman and CEO: ‘The net profit has doubled compared to the first half of 2009, after adjustment for over €5 million of net non-recurring income during the period. The interim results demonstrate the positive effects of the measures taken, particularly in the Geosynthetics & Grass sector.
On a lower volume of sales, the operating result in the second quarter of this year returned almost to the level recorded before the economic crisis (in comparison with the figure for the second quarter of 2008).
In the synthetic turf activities, changes to both operational and commercial policies have been implemented, which have made an important positive contribution to the rise in income.
The geosynthetics activities have also shown profit growth, partly as a result of good cost control.
As a result of the developments referred to above, the EBITA margin of the Geosynthetics & Grass sector rose from 2.3% to 8.3% in the first six months of 2010.
The reorganisation of the Dutch businesses involved in protective fabrics (TenCate Advanced Textiles) proved effective. The broadening of the product portfolio, which related in particular to the optimisation of characteristics such as wearing comfort and protection, led to an increased order intake.
Sales of protective fabrics to the US Army are expected to return to the original level in the second half of the year. Products with the Multicam print are now being delivered.
The outlook for aerospace and armour composites is improving. More positive news is coming out of the aircraft industry, and the destocking in the supply chain appears to be at an end.
In view of these developments, the Advanced Textiles & Composites sector is expected to deliver an increased contribution to sales and profit in the second half of the year compared to the first six months.’
Performance in the second quarter
Sales rose 14% in the second quarter compared to the same period in 2009, to €263.1 million (+6% organic; +5% currency effect; +3% acquisitions/divestments). This rise was due almost entirely to the Geosynthetics & Grass sector.
Sales in the Grass group showed considerable growth in the second quarter. That was partly due to the restrained sales policy in the fourth quarter of 2009 (reduction in off-season sales). The Geosynthetics group showed an (organic) increase in sales in all regions in the second quarter.
Apart from the decrease in sales of protective fabrics for the US defence market (TenCate Defender ™ M and TenCate Gen2 products), almost all other activities in the Advanced Textiles & Composites sector showed sales growth in the second quarter of 2010.
The sales growth in the industrial market for protective fabrics was due in particular to successful market launches, such as TenCate Tecasafe™ Plus. This also provided a positive boost for the Dutch business, which, as European market leader, focuses particularly on the industrial market.
Sales of composites also showed a rise during the period compared to the previous year.
The overall result was a slight decrease in sales in the Advanced Textiles & Composites sector in the second quarter.
EBITA (operating result before amortisation of intangible assets) rose in the second quarter from €13.4 million in 2009 to €30.1 million in 2010, with the largest rise occurring in the Geosynthetics & Grass sector.
Other (financial) information
The cash flow from operating activities in the first half of the year amounted to €17 million (2009: €42 million).
A restrained investment policy remains in force in view of the current economic climate. The total amount invested in fixed assets in the first half of the year was €9.1 million (2009: €8.1 million).
The net interest-bearing debt at the end of June 2010 amounted to €238.0 million (end of June 2009: €287.2 million). The debt/EBITDA ratio was 2.7 (maximum of 3.0 under bank covenant).
The financial income and expenses item decreased by €4.2 million. This difference is mainly due to the write-down of a minority interest which had been included in the 2009 figures.
Earnings per share in the first six months of 2010 rose 27% from €0.62 to €0.78.
Outlook for 2010
The recovery in the results means that TenCate is financially well placed to give greater priority to the buy & build strategy. On that basis, the growth is expected to continue, both organically and through acquisitions. Considerable profit growth is expected in the second half of the year compared to the second half of 2009.
Individual sector commentaries
Advanced Textiles & Composites
The Advanced Textiles & Composites sector showed a sales decrease of 10% in the first half of the year (-13% organic; +1% currency effect; +2% acquisitions/divestments).
Sales of protective fabrics declined overall. This was due to the temporary decrease in purchases by the US Army as a result of the changes to the specifications of the camouflage print. Sales in industrial markets rose, in both Europe and the US. Sales in Asia also increased.
Sales of aerospace and armour composites were at approximately the same level as in the first six months of 2009. In the first six months of this year, however, there was an additional sales contribution from AML UK. The activities in the US showed sales growth in almost all areas.
Sales of armour composites in Europe decreased, partly as a result of delays/postponements of government orders.
European sales in the aircraft industry remained low.
The outlook for the European armour and aerospace activities is improving. The aviation sector is gradually recovering. Targeted internal international co-operation within the Advanced Armour market group, coupled with the acquisition of AML UK, has resulted in a strategic reinforcement.
The 27% organic decrease in EBITA in the first half of the year was due particularly to the aforementioned decrease in defence sales associated with the TenCate Defender™M and TenCate Gen2 products. The currency effect and the effect of acquisitions/divestments on EBITA amounted to +2% and +3% respectively.
A reorganisation provision of over €2 million was also recognised in respect of the Dutch activities in the first quarter. These effects put downward pressure on the EBITA margin.
Geosynthetics & Grass
The sales growth in the Geosynthetics & Grass sector amounted to 18% (+18% organic; +2% currency effect; -2% acquisitions/divestments). The sales growth was attributable particularly to the Grass group, and there was also an increased contribution from the related downstream activities.
The geosynthetics markets in the US and Europe developed favourably, although it is still premature to speak of a structural recovery. TenCate strengthened its position in the Asian market; commercial activities in the Asian infrastructure project market and the environmental market are increasing.
Following the policy changes implemented in the commercial and operational areas, there has been a significant recovery of sales in the synthetic turf businesses (approximately 35% growth). The Grass group’s inventories have decreased, due to the priority given to cash management.
The synthetic turf market in Europe is reluctant, although there is increased demand for high-quality products and systems, particularly in the football segment. TenCate is meeting this demand with products and system warranties and close co-operation with market participants.
EBITA rose 316% (+369% organic; +20% currency effect; -73% acquisitions/divestments).
The results improved both in Geosynthetics and in the Grass group. The Grass group recorded the biggest improvement, however, as a result of the measures taken.
Technologies / Technical Components / Holding & Services
The sales growth of the other activities, including the operating activities of TenCate Enbi and Xennia Technology, amounted to 37% (+34% organic; +3% currency effect).
TenCate Enbi staged a strong turnaround. The cost structure was further reduced, and the market is picking up. The outlook for TenCate Enbi has therefore improved considerably.
Xennia Technology achieved significant commercial and strategic progress. Exclusive contracts were entered into with various producers of machines (OEMs) and components (printer heads) for a range of applications. Xennia focuses on the top segment of the market for industrial applications for inkjet printing. Xennia’s offering comprises turnkey systems and related products (components, inks). The commercial sale of specialists inks (textile printing, ceramics industry) was launched at the end of the first half of this year.
This technology is important for TenCate as a method for applying nano-surface coatings. It is also an extremely environmentally friendly and sustainable technology.
Statement of the Executive Board
‘The Executive Board hereby declares that, to the best of their knowledge, the
semi-annual financial statements, which have been prepared in accordance with
lAS 34, "lnterim Financial Reporting", give a true and fair view of the assets,
liabilities, financial position and profit of Royal TenCate and the undertakings
included in the consolidation as a whole, and the semi-annual management report
includes a fair review of the information required pursuant to section 5:25d,
subsections 8 and 9 of the Dutch Financial Markets Supervision Act (Wet op het
Almelo, Thursday 26 August 2010
Royal Ten Cate nv