Ireland | 14 November 2014 09:00
KHD Humboldt Wedag International AG / Release of an announcement according to Article 37x of the WpHG [the German Securities Trading Act]
14.11.2014 09:00
Interim report according to Article 37x of the WpHG, transmitted by
DGAP - a service of EQS Group AG.
The issuer is solely responsible for the content of this announcement.
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KHD Humboldt Wedag
International AG, Cologne, Germany
Interim Report Pursuant to Section 37x of the German Securities Trading Act
(WpHG)
as of November 14, 2014
ISIN: DE0006578008
German Securities Identification Number (WKN): 657800
Stock Exchange Symbol: KWG
www.khd.com
Summary for the First Nine Months of the 2014 Financial Year
- Continued unsatisfactory order intake in the Capex segment
- Gross profit increase compared with previous period
- Positive EBIT despite higher research and development expenses
- Confirmation of the updated forecast for the 2014 financial year
Key Figures at a Glance
Jan. 1 - Jan. 1 - Variance
in EUR million Sept. 30, 2014 Sept. 30, 2013 in %
Order intake 80.2 82.8 -3.1
Revenue 173.2 181.5 -4.6
Gross Profit 28.3 24.5 15.5
Gross Profit (in %) 16.3 13.5 20.7
EBIT 3.2 4.1 -22.0
EBIT margin (in %) 1.8 2.3 -21.7
EBT 5.0 5.1 -2.0
Group net profit for the period 3.3 3.6 -8.3
EPS (in EUR) 0.07 0.07 0.0
Cash flow from operating activities -19.1 -44.2
Cash flow from investing activities* -51.8 -0.6
Cash flow from financing activities 32.0 -32.8
Variance
in EUR million Sept. 30, 2014 Dec. 31, 2013 in %
Equity 229.0 222.5 2.9
Equity ratio (in %) 57.1 53.2 7.3
Cash and intercompany loan* 214.1 228.2 -6.2
Net working capital 33.0 14.3 130.8
Order Backlog** 246.3 339.3 -27.4
Employees 785 757 3.7
* Includes intercompany loan of EUR 50 million
** Previous year's figure corrected for canceled order in Russia
Please note that differences can result from the use of rounded amounts and
percentages.
Market Environment
In the first nine months, the world economy grew weaker than expected. In
October, the International Monetary Fund (IMF) revised its growth forecast
for 2014 downward by 0.1 percentage points to 3.3% (previous year: 3.3%).
For the developing and emerging economies, the IMF now expects growth of
only 4.4% in the current year (previous year: 4.7%). Risks arose above all
from the geopolitical situation in the Middle East and the Ukraine as well
as the again increasing uncertainty in the financial markets. In addition,
the continued subdued market dynamics in the Eurozone and weakening growth
in the emerging economies had an effect.
KHD Humboldt Wedag International AG's (hereinafter referred to as 'KHD' or
the 'Group') key sales markets were affected by the weak economy in several
ways:
- In India, the cement industry continued suffering from low capacity
utilization. Nevertheless, there were signs of somewhat stronger
economic growth in the third quarter, which had a positive impact on
the demand for cement.
- The economic situation in Russia continued to deteriorate in view of
the Ukraine crisis and related sanctions. Nevertheless, the consumption
of cement increased further due to ongoing infrastructure investments.
- Growth in Turkey has slowed over the course of the year. However, the
construction industry has shown stability.
- The USA remains on a path of economic recovery. The demand for cement
benefited from high growth rates in the construction industry.
- The cement markets in Latin America continued to be affected by the
lack of momentum in Brazil, Mexico, and Argentina.
Business Development
Controlling, monitoring and reporting within KHD have been carried out in
the two separate segments Capex (project business) and Parts & Services
since January 1, 2014. Comparability with the figures for the 2013
financial year is, however, only provided for the aggregated values.
During the first nine months of 2014, order intake was EUR 80.2 million,
slightly below the previous year's level (EUR 82.8 million). The Parts &
Services segment contributed EUR 41.8 million, which is more than half of
the total value.
Since the newly won order in Russia (Kaluga region) totaling more than EUR
90 million could not yet be recorded in order intake, total order intake in
the Capex segment amounted to just EUR 38.4 million.
As a result of the low level of order intake and the execution of existing
projects, order backlog as of September 30, 2014 was at EUR 246.3 million,
well below the level at the end of the 2013 financial year (EUR 339.3
million).
Group Earnings Situation
Revenue of EUR 173.2 million declined slightly by 4.6% compared with the
previous year's amount (EUR 181.5 million). Within the cost of sales,
project costs of approximately EUR 5.0 million, which were back charged to
a subcontractor in the third quarter 2014, had a positive impact. As a
result, gross profit for the first nine months was EUR 28.3 million - 15.5%
above previous year's amount (EUR 24.5 million). The gross profit margin
thus rose from previous year's 13.5% to 16.3%.
Sales expenses rose by 8.6% from EUR 7.0 million to EUR 7.6 million in the
first nine months of the 2014 financial year. Sales activities remained
focused on strategically important projects in KHD's core markets. The
increase in general and administrative expenses by 10.9% from EUR 11.9
million to EUR 13.2 million was to a large extent attributable to higher
personnel expenses, also from the expansion of the Parts & Services
segment. Other expenses of EUR 5.3 million (previous year: EUR 4.5 million)
include research and development expenses of EUR 3.3 million (previous
year: EUR 2.1 million). The significant increase in research and
development expenses from the previous year was due to additional focus on
several development projects, which will reinforce KHD's leading
technological position. Both the expansion of the Parts & Services business
unit and the increased expenses for research and development reflect the
continued investment in KHD's strategic growth despite the currently
difficult economic environment.
Earnings before interest and taxes (EBIT) amounted to EUR 3.2 million in
the reporting period (previous year: EUR 4.1 million), which corresponded
to an EBIT margin of 1.8% (previous year: 2.3%).
The Group's net finance income of EUR 1.7 million (previous year: EUR 1.0
million) improved significantly. Net finance income includes interest
income of EUR 0.6 million resulting from a EUR 50 million intercompany loan
granted in July 2014 to AVIC International (HK) Group Ltd., Hong Kong.
Earnings before taxes (EBT) of EUR 5.0 million were at the previous year's
level (EUR 5.1 million).
The net profit for the period came to EUR 3.3 million (previous year: EUR
3.6 million), which translates into diluted and basic earnings per share of
EUR 0.07 (previous year: EUR 0.07).
Segment Earnings Situation
Capex segment revenue of EUR 131.3 million fell short of the budgeted
value. In the Parts & Services segment, revenue totaled EUR 41.9 million,
well above the budgeted amount.
Despite back charging project costs of roughly EUR 5.0 million to a
subcontractor, gross profit in the Capex segment of EUR 16.7 million (gross
profit margin: 12.7%) was unsatisfactory. This is, in particular, due to
the execution of low-margin projects and margin deterioration in current
projects. In contrast, the Parts & Services segment generated gross profit
of EUR 11.6 million (gross profit margin: 27.7%).
Due to the back charging of project costs to a subcontractor in the third
quarter of 2014, EBIT in the Capex segment of EUR -4.9 million improved
compared with the amount reported at the end of the first half year. EBIT
of EUR 8.1 million in the Parts & Services segment was able to more than
compensate for the negative result in the Capex segment. This underscores
the growing significance of this segment for KHD.
Financial Position and Net Assets
KHD's total cash and cash equivalents fell significantly in the first three
quarters by EUR 64.1 million from EUR 228.2 million to EUR 164.1 million.
This decrease was, in particular, caused by granting an intercompany loan
of EUR 50 million to AVIC International (HK) Group Ltd., Hong Kong. The
loan has a term of three years and bears interest at a rate of 6% per
annum. KHD is entitled to call for repayment of the loan at any time prior
to its maturity by giving 30 days' notice.
New Financing Agreements
The previous credit facility agreement with a consortium of banks was
canceled in August. KHD has now concluded bilateral bank guarantee credit
facilities with the Deutsche Bank AG (EUR 40 million) and the Austrian
Raiffeisen Bank International AG (EUR 38 million). In addition, KHD has,
among others, bonding line agreements with the Bank of China and the
Industrial and Commercial Bank of China with a total volume of about EUR 70
million.
Liquidity
Cash flow from operating activities (EUR -19.1 million) was adversely
affected in particular by the repayment of advance payments following the
cancellation of an order in Russia.
Cash flow from investing activities of EUR -51.8 million was mainly
characterized by granting an intercompany loan of EUR 50 million to AVIC
International (HK) Group Ltd., Hong Kong.
Cash flow from financing activities amounted to EUR 32.0 million. Due to
the cancellation of the previous credit facility agreement in August the
consortium of banks repaid cash collateral for bank guarantees (restricted
cash) amounting to EUR 28.0 million.
Total Assets
The balance sheet total decreased since the year end 2013 by EUR 17.4
million from EUR 418.1 million to EUR 400.7 million. On the assets side,
the significant increase in other financial assets was largely caused by
the intercompany loan amounting to EUR 50 million granted in July 2014. In
addition to the payment of the intercompany loan, mainly disbursements from
operating activities caused a decline in cash and cash equivalents.
Financing
On the liabilities side, commitments under construction contracts declined
by EUR 13.0 million. This decrease was impacted by the repayment of advance
payments following the cancellation of an order in Russia. Due to
utilization as well as releases, current provisions fell by EUR 6.4
million.
Net working capital - the difference between current assets (less cash and
cash equivalents and intercompany loans) and current liabilities - rose
significantly to EUR 33.0 million compared with the amount as of December
31, 2013 (EUR 14.3 million).
Equity increased by EUR 6.5 million from EUR 222.5 million at year end 2013
to EUR 229.0 million. In addition to the positive Group net profit for the
period, this movement was caused by currency translation differences
recognized in equity from foreign subsidiaries. As of September 30, 2014,
the equity ratio amounted to 57.1%, a further increase compared with the
ratio as of December 31, 2013 (53.2%).
Developments after September 30, 2014
On 13 November 2014 KHD has entered into a second EUR 50 million loan
agreement with AVIC International (HK) Group Ltd., Hong Kong, as the
borrower. The loan bears interest at a rate of six percentage points per
annum and will be granted for a fixed term of three years.
No further developments or events of particular significance occurred after
September 30, 2014.
Risk and Opportunities Report
KHD's approach to risk management ensures that changes in the risk position
are promptly identified. To the extent required, provisions are set up for
specific risks. The risks identified do not pose a threat to the KHD Group
as a going concern, either individually or in combination.
As already indicated in the half-year report, risks associated with the
economic environment increased over the course of the year, in particular
due to the economic situation in Russia following the crisis in the
Ukraine. In addition, possible default risks in connection with the loan
agreement with AVIC were added, even though this risk is classified as
'low.'
There has been no other significant change in the assessment of risks and
opportunities since December 31, 2013. Please refer to the relevant section
in the KHD Group management report as of December 31, 2013 (page 39 ff. of
the Group Annual Report).
Outlook
Economic growth in KHD's core markets is not expected to gain momentum in
the final quarter. As a consequence the dynamics in the cement markets -
with the exception of North America - should also remain limited.
Therefore, the growth rate for worldwide cement consumption will not match
the forecasts at the beginning of the year (CW Group: 3.9%; Exane BNP
Paribas: 2.9% to 6.5%).
Nevertheless, modernization programs and upgrades to improve efficiency and
to meet increased environmental requirements remain important growth
drivers. KHD is well positioned in these areas thanks to its efficient and
environmentally friendly solutions.
KHD essentially confirms the forecast figures updated in August for the
2014 financial year. Since a large order from Russia could not yet be
booked as order intake due to uncertainties related to the crisis in the
Ukraine, the Group's order intake is expected to fall slightly short of the
level in the previous year (EUR 172.4 million). For the Capex segment KHD
expects an order intake of no more than EUR 85 million. However, in the
Parts & Services segment, KHD anticipates order intake of at least EUR 45
million.
Group revenue is expected to decline by up to 10% compared to previous
year's figure (EUR 249.6 million) due to postponements in order intake and
delays in project execution. Revenue in the Parts & Services business unit
is forecasted to be at the same level as order intake, whereas revenue in
the Capex business unit will likely come in at approximately EUR 180
million. Despite the postponement of revenue recognition, KHD maintains its
EBIT margin guidance for the 2014 financial year. Whilst EBIT in the range
of EUR 7 - 9 million is the target for the Parts & Service segment, the
EBIT for the Capex segment will be negative.
KHD also anticipates a stable financial and net assets position for the
rest of the year. Profit before tax will to be positively affected by
interest income from the intercompany loan granted to AVIC.
Cologne, Germany, November 14, 2014
The Management Board
(s) Jouni Salo (s) Ralph Quellmalz (s) Yizhen Zhu
14.11.2014 The DGAP Distribution Services include Regulatory Announcements,
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Language: English
Company: KHD Humboldt Wedag International AG
Colonia-Allee 3
51067 Köln
Germany
Internet: www.khd.com
End of Announcement DGAP News-Service
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