Kendrion N.V. — Earnings Release 2013

Nov 6, 2013

P R E S S R E L E A S E

K E N D R I O N N . V .

6 N O V E M B E R 2 0 1 3

IMPROVING MARKET CONDITIONS FOR INDUSTRIAL; NEW AUTOMOTIVE PROJECTS TAKE SLIGHTLY LONGER TO CONTRIBUTE TO REVENUE

• Revenue for Q3 2013: EUR 97.1 million (up 43% from Q3 2012, fully due to the Kuhnke acquisition)
• Industrial Division: Improving market conditions, modest organic revenue growth in Q3 2013 (+1%); increase in number of orders
• Automotive Division: Difficult market conditions; new projects helped to keep organic revenue in line (-1%)
• No specific revenue and profit forecast for 2013 due to continued uncertainty in macroeconomic trends

(x EUR 1 million)	Q3 2013	Q3 2012	Difference in %
Revenue	97.1	68.1	43%
EBITA	6.4	5.3	21%
Net profit	2.8	2.7	4%
(x EUR 1 million)	Until Q3 2013	Until Q3 2012	Difference in %
Revenue	255.5	219.4	16%
EBITA	17.3	20.2	-14%
Net profit	8.6	11.0	-22%

Key figures ¹

1 EBITA and net profit adjusted for non-recurring items:

Q3 2013: Release of earn-out provision for Kuhnke EUR 4.3 million, non-recurring costs mainly relating to the restructuring and integration of Kuhnke (EUR 3.3 million; after tax EUR 2.5 million)

Q2 2013: Non-recurring costs relating to the Kuhnke acquisition (EUR 1.8 million), along with a non-recurring tax gain of EUR 1.6 million Q3 2012: Release of earn-out provision for FAS Controls Inc (EUR 2.5 million)

Q2 2012: Release of earn-out provision for FAS Controls Inc (EUR 0.7 million) and a non-recurring tax gain of EUR 0.5 million

Piet Veenema, CEO of Kendrion:

"In acquiring Kuhnke, Kendrion has taken a major step towards achieving its growth objectives. We're pleased to report that we are right on schedule with the Kuhnke integration into the Kendrion organisation. Mainly due to weak market conditions in several of our markets, the Automotive Division saw its organic revenue fall slightly this quarter. In addition, the launch of a number of major automotive projects in Germany and the United States has proved to be time-consuming and therefore more costly than expected. In the Industrial Division, we're seeing a slight uptick in the market. Given the income generated by the new projects, the status of our order book, and our investment in future innovations, we remain optimistic about the direction in which our company is heading."

Financial review

Revenue

After falling for several quarters, organic revenue in the third quarter 2013 was in line with the same period last year. Organic revenue in the Industrial Division was up slightly (1%), with the Industrial Magnetic Systems business unit, in particular, seeing its revenue continue to rise steadily from last year. The Industrial Drive Systems business unit has also seen its market improve, while also the new Industrial Control Systems (Kuhnke) business unit developed well.

A number of submarkets in the Automotive Division remain under pressure. The US and Indian truck markets (Heavy Duty Systems business unit) performed substantially less than expected. The Passenger Car Systems business unit expected that, by the third quarter, a number of major projects in the United States and Germany would account for a larger share of the revenue unfortunately, however, there was some delay in getting these projects on track. The new Automotive Control Systems (Kuhnke) business unit reported lower profit and revenue for the third quarter as a result of weak market conditions and due to the delay in launching a new product line. The unit will be working on further improving its efficiency in the coming months. The global bus market, which had been experiencing a revival, managed to continue its momentum into the third quarter, which has benefited the Commercial Vehicle Systems business unit.

Results

The company respectively earned and incurred a number of non-recurring gains and costs in the third quarter of 2013, including the release of a large portion of the provision for the Kuhnke earnout (EUR 4.3 million), as a result of the developments in the Automotive Control Systems business unit, as noted above. This was offset by a total of EUR 3.3 million in non-recurring costs during the third quarter mainly for the anticipated non-recurring costs relating to the Kuhnke integration, particularly in connection with the previously announced job losses (affecting around 40 support roles and management positions), improvements made to Kuhnke's internal production efficiency, and the reorganisation of the sales distribution network. In the third quarter of 2012, Kendrion reported a non-recurring gain of EUR 2.5 million following the release of the FAS Controls earn-out.

The raw-materials prices most important to Kendrion remained virtually equal in the third quarter.

Adjusted for non-recurring items, operating result before amortisation (EBITA) in the third quarter was EUR 6.4 million, with an EBITA margin of 6.6%. As previously noted, this margin was again reduced in the third quarter by the Kuhnke acquisition. Excluding Kuhnke, the EBITA margin rose to 8% in the third quarter (Q3 2012: 7.8%).

Net profit in the third quarter of 2013 was EUR 4.6 million (Q3 2012: EUR 5.3 million). Adjusted for non-recurring items in both years, net profit in the third quarter rose slightly, to EUR 2.8 million (Q3 2012: EUR 2.7 million).

The integration of Kuhnke into the existing Kendrion organisation is right on schedule, as is the further planned utilisation of the production capacity in Romania, which became available following the Kuhnke acquisition.

The number of employees remained virtually unchanged in the third quarter: 2,800 employees, including around 130 temporary workers. Flexibility, which remains a key issue for Kendrion, could be further increased at several of our German sites based on discussions with employees.

Financial position

The balance sheet total, at EUR 347 million, remained practically unchanged in the third quarter.

Investments up to the end of the third quarter came to EUR 12.3 million, with EUR 9.2 million in depreciation. In the third quarter of 2013, the company generated a free cash flow of EUR 2.9 million; whilst year to date, free cash flow was EUR -/- 5.5 million, as a result of the higher investments and higher level of activity. We are expecting a positive free cash flow for the full year 2013.

The ERP "Horizon" project is right on schedule. On 1 October 2013, the last "old" Kendrion business unit transferred to the new IFS system; the conversion of the two most recent acquisitions, (Kendrion (Shelby) and Kendrion Kuhnke) is scheduled for 2014.

With a solvency ratio of 37% as at the end of September 2013, Kendrion's financial position is solid (end of June 2013: 36.5%).

European Commission fine

After the ruling of the General Court of the European Union in Luxembourg in November 2011 to uphold the fine, Kendrion lodged an appeal with the Court of Justice of the European Union. The opinion of Advocate General Sharpston on the appeal that the fine of EUR 34 million should be upheld was published on 30 May 2013.

The date of the final judgement of the Court of Justice has been announced recently; it will be 26 November 2013 (at 09.30 hours). If the Court of Justice adopts the opinion of the Advocate General, the judgement of the Court of Justice will as such not have any significant consequences for Kendrion's operational activities. The possible EC fine has been fully provided for in the company's accounts for an amount of EUR 44.4 million (including interest) as of 30 September 2013. Kendrion will publish a press release upon receipt of the judgement.

Outlook

There is still uncertainty regarding market conditions in a number of submarkets that are key to Kendrion. For one, the company now takes a more cautious view regarding the recovery in the US truck market, and the outlook for the German passenger car market also remains unclear. The sentiment in a number of industrial markets, on the other hand, is more positive, particularly in Kendrion's main home market of Germany. However, we are unable at this stage to provide a specific revenue and profit forecast for the full year 2013.

Kendrion Symposium 2013

Kendrion is committed to providing its customers with innovative solutions and its innovative processes are a key priority in all business units. Having previously established the Kendrion Academy for this purpose – opened in early 2013 – the company will be hosting the second Kendrion Symposium in Villingen-Schwenningen, Germany, on 7 November 2013. This year's theme will be "Magnetised by R&D". The development engineers of our main customers will be among the key guests at this symposium.

Profile Kendrion N.V.

Kendrion N.V., a solution provider, develops, manufactures and markets innovative high-quality electromagnetic systems and components for customers all over the world. Kendrion's operations are carried out by two divisions with in total seven business units focused on specific market segments, namely in the Division Industrial the business units Industrial Magnetic Systems, Industrial Control Systems and Industrial Drive Systems, and in the Division Automotive the business units Passenger Car Systems, Automotive Control Systems, Commercial Vehicle Systems and Heavy Duty Systems.

Kendrion has leading positions in a number of business-to-business niche markets. Germany is Kendrion's main market, although other countries are becoming increasingly important.

Kendrion's activities

Kendrion develops advanced electromagnetic and mechatronic solutions for industrial applications. These are used by customers all over the world in systems such as lifts, door-locking systems, industrial robots, medical equipment, electrical switchbox systems, diesel and gasoline engines, air-conditioning installations, motor cooling systems and beverage dispensers. Kendrion's key customers include a.o. Bosch, Continental, Daimler, Delphi, Eaton, Evobus, Hyundai, Siemens, Volkswagen and Yutong.

Kendrion's shares are listed on NYSE Euronext's Amsterdam market.

Zeist, 6 November 2013

The Executive Board

For more information, please contact:

Kendrion N.V. Mr P. Veenema Utrechtseweg 33 3704 HA ZEIST

Tel: +31 (0)30 – 699 72 68 Fax: +31 (0)30 – 695 11 65 Website: www.kendrion.com

Annexes

• 1. Consolidated statement of comprehensive income
• 1. Consolidated statement of financial position at 30 September
• 1. Financial calendar 2014

Annex 1 – Condensed consolidated statement of comprehensive income

(EUR million)		period ended period ended			year
	Q3 2013	Q3 2012	30-9-2013	30-9-2012	2012
Revenue	97.1	68.1	255.5	219.4	284.9
Other operating income	4.4	2.6	4.5	3.5	5.1
Total revenue and other operating income	101.5	70.7	260.0	222.9	290.0
Changes in inventories of finished goods and work in progress	(0.2)	0.1	(0.3)	(0.8)	1.0
Raw materials and subcontracted work	50.5	35.4	132.5	114.3	148.2
Staff costs	31.4	19.1	79.3	60.7	79.8
Depreciation and amortisation	4.4	3.2	11.2	9.5	12.7
Other operating expenses	8.9	5.7	22.9	17.6	23.9
Result before net finance costs	6.5	7.2	14.4	21.6	24.4
Finance income	0.1	0.1	0.2	0.1	0.1
Finance expense	(1.7)	(1.3)	(4.3)	(3.7)	(5.0)
Net finance costs	(1.6)	(1.2)	(4.1)	(3.6)	(4.9)
Profit before income tax	4.9	6.0	10.3	18.0	19.5
Income tax expense	(0.3)	(0.7)	(0.1)	(3.3)	(1.5)
Profit for the period	4.6	5.3	10.2	14.7	18.0
Attributable to:
Equity holders of the company	4.6	5.3	10.2	14.6	17.9
Minority interest	-	0.0	-	0.1	0.1
Profit for the period	4.6	5.3	10.2	14.7	18.0
Basic earnings per share (EUR), based on weighted average	0.35	0.45	0.82	1.26	1.55
Diluted earnings per share (EUR)	0.35	0.45	0.82	1.26	1.55
Normalised earnings per share (EUR), based on weighted average	0.22	0.24	0.69	0.94	1.16

• The quarterly results are not audited -

Annex 2 – Consolidated statement of financial position

(EUR million)	30 Sept. 2013	30 Sept. 2012	31 Dec. 2012
Assets
Non-current assets
Property, plant and equipment	79.8	62.1	61.8
Intangible assets	121.0	75.5	74.5
Other investments, including derivatives	0.7	0.8	0.7
Deferred tax assets	13.7	7.5	10.5
Total non-current assets	215.2	145.9	147.5
Current assets
Inventories	52.2	39.4	35.2
Current tax assets	3.9	3.0	3.0
Trade and other receivables	59.0	41.6	34.5
Cash and cash equivalents	16.4	9.5	9.9
Total current assets	131.5	93.5	82.6
Total assets	346.7	239.4	230.1
Equity and liabilities
Equity
Share capital	25.9	23.2	23.2
Share premium	74.3	59.9	59.9
Reserves	18.7	3.3	2.1
Retained earnings	10.2	14.6	17.9
Total equity attributable to equity holders of the company	129.1	101.0	103.1
Minority interest	-	0.3	-
Total equity	129.1	101.3	103.1
Liabilities
Loans and borrowings	76.0	25.0	25.8
Employee benefits	18.8	7.8	7.1
Government grants received in advance	0.1	0.1	0.1
Provisions	48.8	45.0	43.6
Deferred tax liabilities	12.2	5.6	6.2
Total non-current liabilities	155.9	83.5	82.8
Bank overdraft	3.4	16.1	5.4
Current tax liabilities	0.6	0.6	0.7
Trade and other payables	57.7	37.9	38.1
Total current liabilities	61.7	54.6	44.2
Total liabilities	217.6	138.1	127.0
Total equity and liabilities	346.7	239.4	230.1

• The quarterly results are not audited -

Annex 3 - Financial calendar 2014

2014

Publication of 2013 full-year figures	Thursday, 27 February 2014	08.00 a.m.
Analysts' meeting	Thursday, 27 February 2014	11.30 a.m.
General Meeting of Shareholders	Monday, 14 April 2014	02.30 p.m.
Publication of Q1 2014 results	Thursday, 8 May 2014	08.00 a.m.
Publication of HY1 2014 results	Thursday, 21 August 2014	08.00 a.m.
Analysts' meeting	Thursday, 21 August 2014	11.30 a.m.
Publication of Q3 2014 results	Thursday, 6 November 2014	08.00 a.m.