1 March 2013

Decrease in TenCate profit due mainly to contraction of US defence market

Highlights of 2012

  • Decrease in revenues of 8% to €1,049 million (autonomous -15%).
  • Normalized EBITA: €60 million; €8 million non-recurring expenses, mainly in the 4th quarter.
  • EBITA: €52.0 million (autonomous -53%).
  • Net profit €22.3 million (autonomous -63%); normalized net profit €27.6 million.
  • Number of FTEs reduced by 350 since May 2012.
  • Free cash flow rises from -€9 million to +€68 million.
  • Interest-bearing debt decreased by approximately €60 million to €230 million.
  • Debt ratio 2.55 (2011: 2.12).
  • Advanced Textiles & Composites sector: substantial decrease in revenues and result due mainly to contraction of the US defence market.
  • Geosynthetics & Grass sector: EBITA rose by €5 million (+20%) with revenues remaining virtually unchanged. 
  • Dividend proposal: €0.50 per share (pay-out 58%), in cash or as a stock dividend at shareholder’s discretion (2011: €0.95 per share, stock dividend option).
Key figures for 2012

Key figures for 2012  x €1 million 2012 2011
Net revenues 1,049.0 1,138.8
Normalized EBITA 60.0 102.5
EBITA 52.0 102.5
EBITA margin 5.0% 9.0%
Net profit 22.3 58.7
Data per share (€)
Net profit 0.86 2.31
Dividend 0.50 0.95
Other information
Free cash flow 68.4 -8.5
Interest bearing debt 229.9 288.7
Debt ratio 2.55 2.12
Loek de Vries, President and CEO: ‘The unexpectedly sharp decrease in sales in the US defence market resulted in a significant reduction in the sales of TenCate Defender™ M and the armour portfolio. TenCate has continually based its outlook on forecasts from the US defence authorities, who displayed increasing reticence, partly in view of the US presidential elections and the threat of the fiscal cliff. This had a major impact on the performance of the group as a whole. The US defence market represents a large proportion of total revenues.
Good progress was recorded in the other key markets where TenCate, on the basis of its buy & build strategy, seeks to promote itself, such as the markets for industrial safety fabrics and composite materials, as well as emerging markets. This occurred both through autonomous growth and by means of acquisitions, including Amber Composites, which was completed at the beginning of 2013.
The autonomous decrease in revenues of on balance approximately €168 million was such that, despite the implementation of cost reductions, a substantial decrease in profit resulted.
Since May 2012 the workforce has been reduced by approximately 350 FTEs. This resulted in a reduction in labour costs of approximately €7 million in the second half of the year. 
As the result of increased market dynamics, the policy was further refined and in the fourth quarter non-recurring provisions were made for an amount of on balance €8 million.
Leading market positions were retained. TenCate has trendsetting products. Safety and protection continue to be the focus of attention worldwide, and consequently confidence is maintained in the future recovery of revenues and profitability.’ 
Annual figures for 2012
The revenues for 2012 amounted to €1,049 million (2011: €1,139 million). In autonomous terms revenues decreased by 15% (currency effect +5%; effect of acquisitions / divestments +2%).
The operating result before the amortization of intangible assets (EBITA) decreased in 2012 by 49% to €52 million (autonomous -53%; currency effect +3%; acquisitions / divestments +1%). This includes an amount of approximately €8.0 million in non-recurring expenses. The normalized EBITA for 2012 amounted to €60.0 million.
The net profit for 2012 decreased by 62% to €22.3 million (2011: €58.7 million). Net earnings per share amounted to €0.86 (2011: €2.31).
Advanced Textiles & Composites Sector
The revenues of the Advanced Textiles & Composites sector decreased by €78 million to €461 million (autonomous -21%). Due in part to the loss of high-grade US defence revenues amounting to approximately US $130 million, the operating result (EBITA) of this sector decreased to €23.5 million (2011: €70.3 million). The autonomous decrease amounted to 70%. 
The demand in Europe for safety fabrics for industrial end-users was in line with the decreased level of activity in the industry. In the police and fire fighting market, which is a relatively new market for TenCate Protective Fabrics EMEA, important reference projects were secured. The US fire fighting market was cautious.
As a result of the postponements and delays of projects for vehicle armouring, sales in the market decreased during 2012 principally in the US. In Europe activities relating to armour for aerospace applications developed favourably, which had a positive effect on the overall performance of the European armour division. 
Space / aerospace activities showed a positive picture. In Europe, however, a temporary delay occurred in deliveries to the Airbus A350 programme. 
In the course of 2012 the first steps were taken to develop the Chinese aerospace market. The first successful contacts were made for participation in future aerospace projects.
A start was made on expanding activities relating to composite materials for industrial applications. The acquisition of PMC Baycomp strengthened the position of TenCate Advanced Composites in the market for industrial composites.
Geosynthetics & Grass Sector
Revenues in the Geosynthetics & Grass sector remained, at €519 million, at a similar level to that of 2011 (autonomous -8%). The operating result of the Geosynthetics & Grass sector rose by in excess of €5 million to €31.5 million (autonomous +10%). 
In the second half of the year there was a weakening of demand at TenCate Geosynthetics, In the US revenues decreased by 16% on an autonomous basis in 2012. In Asia slight autonomous growth was achieved. Despite this unfavourable market trend, the results within the Geosynthetics group continued to stand out positively, thanks to good monitoring of costs and margins. 
The cost measures taken within the Grass group also made a positive contribution to the trend in results.
The southern European synthetic turf market was under pressure from reduced government expenditure. Growth in revenues was achieved in the market activities allied to TenCate for synthetic turf sports systems. Woven synthetic turf systems were well received by the market. This technology offers considerable advantages in both quality and playing characteristics and has a positive effect on the service life of sports pitches.
TenCate Grass, through GreenFields, will also enter the market for hybrid systems (natural grass / synthetic turf) under the brand name Xtragrass. A number of reference pitches have already been installed.
Other activities
At the Other activities (TenCate Enbi, Xennia Technology and Holding & Services) revenues decreased by 6% to €69.7 million. EBITA amounted to -€3.0 million. 
TenCate Enbi displayed a stable trend in revenues. In Europe, and in Asia in particular, growth was achieved. The volume of sales for leading Asian OEMs developed favourably.
At Xennia Technology Ltd (79%) a strategic reorientation took place, as a result of a disappointing performance. Furthermore, the level of costs was reduced.
Explanation of normalized result
The balance of non-recurring costs and income amounted to -€8.0 million. This amount related to the intention to discontinue production in Thailand (-€3.0 million), a downward revaluation within the TenCate Defender™ M inventory (-€3.0 million), as well as adjustments at Xennia Technology (-€2.7 million). In addition, reorganization provisions were made, amounting to a total of €2.6 million. The adjustment to the pension regulations had a non-recurring positive effect of €3.3 million.
On the basis of this the normalized EBITA for 2012 amounted to €60 million.
General performance in the second half of 2012

2nd half of 2012 x €1 million H2 2012 H2 2011 2012 2011
Net revenues 509.4 546.4 1049.0 1138.8
Normalized EBITA 60.0 102.5
EBITA 19.7 46.4 52.0 102.5
EBITA margin 3.9% 8.5% 5.0% 9.0%
Net revenues Advanced Textiles & Composites 219.7 248.9 460.6 538.4
Net revenues Geosynthetics & Grass 257.0 258.3 518.7 525.9
EBITA Advanced Textiles & Composites 4.5 29.1 23.5 70.3
EBITA Geosynthetics & Grass 15.7 12.4 31.5 26.3

The revenues for the second half of 2012 amounted to €509.4 million (-7%). The autonomous change in revenues in the second half of the year amounted to -13%. The currency effect was +5%.

The Advanced Textiles & Composites sector and the Geosynthetics & Grass sector recorded an autonomous change in revenues of -19% and -6% respectively in the second half of the year. 

The operating result before the amortization of intangible assets (EBITA) decreased by €26.7 million compared with the second half of 2011. The non-recurring items reported earlier should be taken into consideration here. The autonomous decrease amounted to -60%; the currency effect was +2%. The EBITA margin in the second half of 2012 amounted to 3.9%.

The Advanced Textiles & Composites sector and the Geosynthetics & Grass sector recorded an autonomous change in EBITA of -87% and +21% respectively in the second half of 2012.

Net profit for the second half of 2012 amounted to €7.6 million (2011: €25.6 million).

Other financial information
Total investments amounted to €16.6 million (2011: €25.7 million). The major investment (€4 million) related to the development of the TenCate ABDS™ active blast countermeasure system (protection against roadside bombs). Of the total investments, more than half related to innovations.

The net interest-bearing debt amounted to €230 million at the end of 2012 (2011: €289 million). The autonomous decrease in the debt position amounted to €58 million. A large portion of this was the result of a decline in working capital.

The debt ratio at the end of 2012 (debt / EBITDA ratio) improved from 2.74 (at the end of June) to 2.55 (2011: 2.12). 

The tax rate rose to 34% (2011: 24%). This increase compared with 2011 is mainly the result of the increase in losses in countries where no full deferred tax asset is recognized. The normalized tax rate amounted to 28%.

Since May 2012 the workforce has decreased by approximately 350 FTEs. The greatest changes occurred at the Grass group, the Geosynthetics group and the Advanced Armour group. 

Dividend proposal
It is proposed to set the dividend for 2012 at €0.50 per €2.50 par value share (pay-out 58%). This means a deviation from the usual pay-out percentage of 40%, in accordance with the communicated dividend policy. 

Underpinning this dividend proposal are the expectations of the company’s continued growth in the longer term and confidence, which is based on the leading market positions that TenCate occupies. The dividend will be payable at shareholders’ discretion either in cash or in shares charged to the share premium reserve.

There is uncertainty about the further effects of the governmental budgetary measures that will be taken in the United States of America. The outcome of this process will also be of significance for the trend in revenues of TenCate. In the short term European governments too are expected to remain cautious in the expenditure of public funds.

The market themes on which TenCate focuses and which are primarily related to people’s safety, the protection of their living environment and the theme of sustainability, however, continue to be very topical. This opens up opportunities for TenCate.

In 2013 the marketing of safety fabrics in Asia will be restructured. TenCate will thereby strongly position its successful TenCate Tecasafe™ Plus portfolio and other products for the industrial market, in order to boost sales in Asia. As a result of this, the Thai joint venture will be closed down. 

In mid-2012 a refining of the strategy was announced. TenCate intensified its focus on the development of industrial markets, such as protective clothing for industrial use, the automotive sector (weight reduction) and further geographic spread (BRIC countries). TenCate aims to secure partnerships with third parties in order to achieve accelerated growth here. During 2012 the first results of this became visible (3M, BASF, qualifications for the automotive industry). This policy will be continued in 2013.

Above-average growth is expected for key growth products, such as TenCate Cetex® (aerospace composites), TenCate Tecasafe™ Plus and TenCate Geotube® (geocontainers for water management systems). The international growth in sales of TenCate Defender™ M will to an increasing extent offset a possible further decline in US sales. A decrease in sales such as manifested itself in this area in 2012 is not expected to occur in 2013.

Royal Ten Cate
Almelo, the Netherlands, Friday 1 March 2013

Download: 130301 Press release regarding annual results 2012.pdf
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