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Koninklijke TenCate NV (AMS:KTC) * Sales first half 2008: € 511.6 million (+20%; +8% autonomous) * EBITA first half 2008: € 45.3 million (+45%; +5% autonomous) * EBITA margin: 8.9% (first half 2007: 7.3%) * Net profit before amortization and excluding result from divested activities and exceptional items (cash earnings): € 30.3 million (+47%) * Net profit first half 2008: € 25.4 million (2007: €19.4 million) * Very strong second quarter: EBITA grows by 59% to € 31.9 million * Autonomous sales growth Advanced Textiles & Composites sector +15% * Autonomous sales growth Geosynthetics & Grass sector +8% * Good market outlook * Rise in cash earnings of at least 30% expected for 2008 as a whole
General performance second quarter 2008
Sales in the second quarter of 2008 increased by 28% to € 302 million. In autonomous terms growth was 11%. The currency effect on sales amounted to -8%. The growth can be attributed to both American military orders for protective fabrics and vehicle armour (acquisition of Composix) and to European military orders for vehicle armour.
In addition, there were increasing sales of aerospace composites, mainly due to the deliveries to Airbus Industries and strong growth in the sales of synthetic turf activities.
Apart from the geosynthetics market in the US, which is mainly related to activities in the construction and infrastructure industry, there was in the second quarter a continuation of the growth in the core markets in which TenCate occupies leading positions worldwide.
The recent opening of the production site in China for geosynthetics and the joint venture in Thailand for safety fabrics has strengthened the position in the rapidly growing Asian markets.
The operating result before amortization (EBITA) rose in the second quarter to € 31.9 million (+59%). In autonomous terms, the rise amounted to 10%. The currency effect on EBITA amounted to -13% in the second quarter.
The EBITA margin rose from 8.5% to 10.5% in the second quarter.
The net profit before amortization and excluding the result from divested activities and exceptional items (cash earnings) increased by 52% to € 21.8 million in the second quarter. (Amortization amounted to € 3.8 million in the second quarter.)
First half 2008
Sales in the first half amounted to € 511.6 million (2007: € 426.3 million). This sales growth of 20% was to a large extent the result of acquisitions. On an autonomous basis sales increased by 8%.
The currency effect on sales amounted to -8%, primarily as a result of the weak American dollar.
The operating result before amortization was € 45.3 million, a rise of 45% compared to the first half of 2007. In autonomous terms the rise was 5%. The currency effect was -12%.
The EBITA margin rose from 7.3% to 8.9% in the first half of the year.
Cash earnings amounted to € 30.3 million for the first six months of 2008 (compared to 2007: +47%). The growth is above the previously indicated profit growth based on provisional figures, due to the completion of the processing of acquisitions.
The total amortization charge rose to € 4.9 million (2007: € 1.3 million) as a result of the acquisitions made during the first half
The net profit for the first half of 2008 amounted to € 25.4 million (2007: € 19.4 million).
Net earnings per share for the first six months were € 1.08 (2007: € 0.86).
Outlook for 2008
The market outlook for TenCate 's major core markets remains favourable. TenCate therefore expects once again a strong annual result.
The net profit before amortization and excluding the result from divested activities and exceptional items (cash earnings), which amounted to € 46.6 million in 2007, is expected to increase by at least 30%, barring unforeseen circumstances. The amortization charge for 2008 as a whole will be approximately € 10 million (2007: € 3.6 million).
The Advanced Textiles & Composites sector showed a growth in sales of 48% in the first half. A major proportion of the increase in sales resulted from the acquired company Composix. In the first half of the year sales increased by 15% on an autonomous basis. The currency effect amounted to -9%.
The results too showed very strong growth. In autonomous terms, EBITA rose in the first half of the year by 11%
The further rise in the EBITA margin reflects the increase in the proportion of products with a high functional value and distinctive capability.
Sales in this sector are to a large extent determined by the tightening up of the requirements relating to levels of protection with regard to fire-resistance and armour for military personnel and materiel. The American defence market is of particular importance in this respect.
The defence orders for safety fabrics form a major part of the total sales in this sector. In the future too the demand for fire-resistant fabrics will continue to develop strongly, in view of the safety requirements of the US army and increasing interest from Europe.
TenCate Defender(TM) M material, which was specially developed by TenCate to meet the specifications of the US army, is the leading product in this market. The capacity relating to fibre production by suppliers has now been brought in line with current needs. In the second half of the year volumes may be stepped up further.
Sales in Europe in the field of safety fabrics, where sales are primarily generated in the industrial market for professional wear and protective clothing, are at a lower level than the previous year.
TenCate recently entered into a joint venture with a Thai producer in order to secure a position in the emerging Asian market for protective fabrics. The joint venture will become operational in mid-August.
The acquisition of Xennia plc (75%) in March 2008 represents an acceleration in the marketing of inkjet technology for certain industrial applications, including production processes in the textile sector. TenCate will exclusively deploy this technology in markets for technical textiles (functional materials). Other industrial sectors will be allowed to use the technology under licence.
In previous years the company focused mainly on research projects for third parties. In the first half of 2008 Xennia made a number of major commercial breakthroughs using its own technology solutions.
As a result of the acquisition of Composix at the end of January 2008 TenCate secured an excellent starting position in the American market for vehicle armour. The acquisition has enabled TenCate to tender for large-scale projects. This has resulted in substantial orders in this market in the first half of 2008.
In Europe sales of vehicle armour increased. For the remainder of the year too there is a well-filled order book in the field of both antiballistic products and personal protection.
With regard to aerospace composites sales increased, mainly as a result of the production of composite materials (TenCate Cetex®) for the Airbus A380. The acquisition of Phoenixx (US) has enabled TenCate to take a major step in the development of UD technology for the aerospace sector. Its position as a development partner and supplier to the entire aircraft industry will consequently be strengthened.
Through the acquisition of the company YLA / CCS in the US, TenCate has acquired a leading position in the field of composites for the space industry. TenCate materials were once again incorporated in NASA's recent Mars Mission.
Sales growth for the first six months amounted to 7%. In autonomous terms the rise was 8%. The negative currency effect put downward pressure to an amount of 7% on sales growth.
On an autonomous basis the rise in EBITA amounted to 14% in the first half of 2008. A higher EBITA margin was achieved through cost reductions and better process management, although the sharp rise in the price of raw materials had a negative effect on this. Market prices can only brought in line with developments in the raw materials market (PE / PP) after a certain time lag.
The growth in the Geosynthetics & Grass sector was achieved under less favourable market conditions. These are due on the one hand to economic factors and the sharply rising costs of raw materials and on the other hand to the current cash crunch resulting from the problems in the financial markets.
The Asian market for geosynthetics continues to develop strongly. TenCate opened a production site in China in mid-June in order to meet the growing demand. The American geosynthetics market is unremittingly sluggish.
Apart from applications in infrastructure and the construction industry, TenCate has developed a number of interesting applications in the field of water management, the environment and industry. A large order for example was secured for the manufacture of cages for large-scale natural fish farming (TenCate Aquagrid®).
Although the synthetic turf market shows continuing growth, there are major regional differences. In Europe the football market is strongly represented in synthetic turf. In America and Asia the market is dominated by multipurpose sports pitches for schools, universities and other institutions. On balance the growth of the synthetic turf market currently falls short of the long-term market outlook (15%-20% growth).
TenCate Enbi showed a declined in sales, which was mainly due to delays in new projects. These will go ahead later in the year. TenCate Enbi regularly generates new qualifications for new types of inkjet and laser copiers, for which the components must once again be developed. The timing of the launch of these new models will have an impact on the trend in sales of TenCate Enbi as one of the major suppliers in this industry.
A successful policy has been pursued in respect of the acquisition of qualifications for major Asian producers.
Financial
Investments in the first half of the year amounted to € 29.4 million (2007: € 28.9 million). These investments are in part related to projects that were already started in 2007 or were approved in that year. For 2008 as a whole investments will be at a lower level than in the previous financial year.
Important projects included the expansion of the production capacity for composites, particularly in the light of the increasing production for Airbus, the construction of the new geosynthetics plant in China and the expansion of synthetic turf production in Dubai and the US.
The tax rate for the first six months rose from 23% in 2007 to 30% in 2008. The rise was due to a non-recurring tax credit in 2007 and a non-deductible part of the amortization item, which has risen sharply in the current financial year. The altered geographic composition of profit, in which the proportion from the US has increased, also led to a higher average tax charge.
The net interest-bearing debt increased in the first half to € 349 million (2007: € 246 million) as a result of the acquisitions made.
The net finance charges were favourably affected by the exchange rate trend of the American dollar, the lower level of dollar interest and the positive development in value of interest and currency instruments.
Almelo, 20 August 2008 Royal Ten Cate
For further information: F. R. Spaan Director Investor Relations & Corporate Development Tel: + 31 546 544 338 Mob: + 31 6 12 96 17 24 f.spaan@tencate.com www.tencate.com
