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Neways Posts 23% Rvenue Growth in 1H11
August 24, 2011 |Estimated reading time: 7 minutes
Neways Electronics International N.V. (Neways) increased turnover by 23% to EUR 143.5 million in the first six months of 2011. The increase was almost entirely organic. There was growth across virtually the entire range of activities in the EMS market. Net profit in the first six months more than doubled to EUR 3.2 million. Market demand weakened in May and June under the impact of macro-economic developments, but with orders worth EUR 68.8 million at the end of June the order book remained at a good level. Against the high level of March 31, 2011, the order book stood around 9% lower, whereas it was up by approximately 2% compare to 30 June 2010.
Turnover and Order Book
Gross turnover increased by 24.3% in the first six months of 2011 to EUR 156.4 million (first half of 2010: EUR 125.8 million). Internal turnover increased by 45% vis-à-vis the same period last year. Net turnover increased 22.7% to EUR 143.5 million. Turnover figures in the semiconductor, industrial and automotive sectors made a considerable contribution to growth. The acquired DHV activities were included in the consolidation as of 1 May 2011 and contributed EUR 0.6 million in turnover.
The order book at the end of June 2011 contained orders worth a total of EUR 68.8 million and was therefore at a good level. In comparison with 30 June 2010 (EUR 67.4 million), the order book increased by around 2%, whereas versus the end of March 2011 (EUR 75.3 million) there was a decrease of around 9%. The decrease was mainly the result of hesitancy in various market segments owing to the present uncertainty in global financial markets. This led to downward adjustments in the plans of various customers.
Gross Margin
As a percentage of turnover, the gross margin remained almost stable in the first half of 2011 at 40.9% in comparison with 41.1% in the first half of 2010.
Operating Costs
Capacity utilisation rates in the Neways operating companies were high in the first half of 2011, with the exception of the operating company in Kassel (Germany). As mentioned in the quarterly update, disruptions in the delivery of materials by suppliers led to less than desirable efficiency in the deployment of people and resources. The impact of this was exacerbated by the disaster in Japan in March. This brought personnel costs to EUR 39.9 million, a 19% increase on the first half of 2010. The average number of FTEs rose to 2,198, an increase of 16% on the figure for the first half of 2010. Besides the increase resulting from the acquisition of DHV's activities, this mainly concerns flexibly deployable staff in the operating companies in western Europe, eastern Europe and China. The other costs (including accommodation costs, production costs and the costs of sales) increased by 12%. Depreciation increased slightly from EUR 2.2 million to EUR 2.3 million.
Operating Result and Operating Margin
The operating result came to EUR 5.3 million, as against EUR 2.6 million in the first six months of 2010. This meant that the operating margin stood at 3.7%.
Financing Costs and Tax Burden
Financing costs increased to EUR 0.5 million in comparison with EUR 0.3 million for the same period last year, due to the greater use made of the overdraft facility and a higher interest rate. The relatively high tax burden was more than 33%, due to the negative contribution of the German activities, for which no deferred tax assets are included in the result over the period under review.
Net Result and Profit Per Share
The net result amounted to a profit of EUR 3.2 million, more than double the figure for the first half of 2010 (EUR 1.5 million). The net result per share increased to EUR 0.32 compared with EUR 0.15 in the first half of 2010. Dividend payments in the form of new shares increased the total number of ordinary shares outstanding to 9,833,794, as at June 30, 2011.
Shareholders' Equity and Solvency
The financial position of Neways continues to be good. Net profit resulted in shareholders' equity increasing by 5% to EUR 48.7 million (at year-end 2010: EUR 46.2 million). Solvency (shareholders' equity/total assets) decreased at the end of June 2011 to 39.7% versus 42.2% at year-end 2010. The decrease was mainly the result of a considerable increase in the balance sheet total owing to a sharp increase in working capital and the acquisition of DHV's activities. Adjusted for deferred tax items and goodwill, solvency fell from 40.7% to 37.3%, which is well above the minimum target of 35%.
Net Debt Position
The mainly short-term interest-bearing debts totalled EUR 16.2 million, an increase of EUR 10.9 million versus year-end 2010 and an increase of EUR 9.1 million compared with end of June 2010. The net debt position stood at EUR 15.9 million.
Working Capital
A further rise in the level of business activities increased working capital (inventories plus receivables less trade payables and other payables) by 30% to EUR 48.7 million versus year-end 2010. Inventories rose as a result of the higher level of business activities but also because of a lower turnover rate, owing to downward adjustments in the plans of various customers. In total the turnover rate decreased by nine days to 74 days versus the end of last year. The accounts payable item and other current liabilities remained almost the same. Accounts receivable increased slightly to EUR 39.9 million thanks to the higher turnover. At 47 days the number of days sales outstanding increased slightly versus 45 days at year-end 2010. The provision for bad debts as at June 30, 2011 was EUR 0.5 million (December 31, 2010: EUR 0.5 million).
Investments and Net Cash Flow
Total investments in tangible and intangible fixed assets came to EUR 3.0 million compared with EUR 1.2 million in the first half of 2010. The return on capital invested (operating result as a percentage of capital invested) increased in the first half of 2011 to 10.2% versus 5.6% in the corresponding period last year.
Net cash flow was EUR 10.6 million negative, clearly weaker than the positive net cash flow of EUR 4.3 million in the first half of 2010. This was mainly the result of the sharp increase in inventories, the acquisition of DHV's activities and the higher level of investments.
Important Strategic and Operational Developments
Neways took important strategic steps in the past six months. In its endeavour to further expand development and engineering activities, Neways took over the electronic development activities in Eindhoven of the consultancy and engineering firm DHV in May this year. With this, 54 engineers were transferred to Neways. Neways also increased its 90% stake in subsidiary Neways Micro Electronics China to 100%. This increase means that all the operating companies are now wholly owned by Neways.
To improve returns, attention inside the organisation during the past six months was focused sharply on the realisation of further steps in efficiency. In addition to anticipating temporarily longer delivery periods for materials, various initiatives have been started to increase the low capacity utilisation in the operating company in Kassel (Germany). To this end, a project group as initiated by the holding company started implementing efficiency improvements and actions concerned with closer cooperation with other operating companies and generating new projects and orders.
The total number of employees (FTEs) at year-end June 2011 had decreased by 1% from 2,194 to 2,172. Mainly because of the acquisition of DHV's activities, the number of employees in western Europe increased from 1,328 at year-end 2010 to 1,374 at the end of June 2011. The number of employees in eastern Europe and China decreased from 866 at year-end 2010 to 798 at the end of June 30, 2011. Approximately 40% of Neways total workforce is active in Eastern Europe and China.
Outlook
The general global economic outlook, which is currently strongly influenced by the debt crisis, led to hesitancy among customers, including various globally operating OEMs, especially in May and June. The order book as at June 30, 2011 stood at a higher level than in June last year but fell by 9% compared with the level at the end of March 2011. This will put downward pressure on turnover in the third quarter. A positive development is that the issue of materials shortages in the entire chain is now as good as solved and its impact on the results in the second half of the year will clearly be less.
To be able to respond effectively to developments in the various market segments the focus in the second half of 2011 will be on utilization and capacity. This will include a strong focus on maintaining flexibility with strict working capital management. To improve the competitive position, emphasis will continue to be on outsourcing to production sites in eastern Europe and Asia and on expanding procurement activities in China.
The order book has increased again since the end of June. On the other hand, one-off reorganisation costs yet to be specified are expected in the second half of 2011 in connection with adjusting the organisation of the operating company in Kassel (around 10% of group turnover) to changed market demand.
The recent sharp increase in uncertainty in the global economic outlook makes it very difficult to predict developments, especially in the fourth quarter. Therefore, it is not sure whether the expectation regarding turnover and profit stated after the first quarter indeed can be realized.
About Neways Electronics International N.V.
Neways Electronics International N.V. (Neways) is an international company active in the EMS market. Neways offers its clients custom-made solutions for the complete production life cycle (from product development to after-sales service) of both electronic components and complete (box build) electronic control systems. Neways operates in a niche of the EMS market and focuses primarily on small to medium-sized specialist series, with quality, flexibility and time-to-market playing a crucial role. Sectors in which Neways´ products are used include the semi-conductor, medical, automotive, telecom and defence industries. Neways has operating companies in the Netherlands, Germany, Slovakia and China, with a total of around 2,200 employees. In 2010, Neways booked net turnover of € 254.5 million. Neways is listed on NYSE Euronext Amsterdam (symbol: NEWAY). For more information, visit http://www.neways.nl/.