Earnings Release • Aug 16, 2017
Earnings Release
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I N T E R I M R E P O R T 2 0 1 7
| Revenue | 117.3 | 114.1 | 3% |
|---|---|---|---|
| EBITDA | 15.8 | 13.7 | 15% |
| EBITA | 10.6 | 8.6 | 23% |
| Net profit | 6.8 | 5.4 | 26% |
| ROS | 9.0% | 7.5% |
| (x EUR 1 million unless otherw ise stated) |
Q2 20171 | Q2 20162 | Difference in % | |
|---|---|---|---|---|
| Revenue | 117.3 | 114.1 | 3% | |
| EBITDA | 15.8 | 13.7 | 15% | |
| EBITA | 10.6 | 8.6 | 23% | |
| Net profit | 6.8 | 5.4 | 26% | |
| ROS | 9.0% | 7.5% | ||
| (x EUR 1 million unless otherw ise stated) |
HY1 20171 | HY1 20162 | Difference in % | |
| Revenue | 235.6 | 225.4 | 5% | |
| EBITDA | 31.4 | 26.5 | 18% | |
| EBITA | 21.1 | 16.4 | 29% | |
| Net profit | 13.7 | 10.1 | 36% | |
| ROS | 9.0% | 7.3% | ||
| 1 Normalised for HY1 2017 non-recurring restructuring costs of EUR 2.0 million (after tax EUR 1.5 million): Q1 2017: EUR 1.2 million (after tax EUR 0.9 million); Q2 2017: EUR 0.8 million (after tax EUR 0.6 million) |
||||
| 2 Normalised for HY1 2016 non-recurring restructuring costs of EUR 3.4 million (after tax EUR 2.8 million): Q1 2016: EUR 2.7 million (after tax EUR 2.1 million); Q2 2016: EUR 0.7 million (after tax EUR 0.7 million) |
are investing in additional production capacity in Germany for permanent magnet brakes. In China, where we saw double digit revenue growth over the first half year, we plan to open a new facility for expansion of our production capacity in the first half of 2018, in anticipation of further growth.
The global economic outlook improved and we look at the future with confidence, based on our strong business fundamentals, broad R&D capabilities, close customer relationships and growing project pipeline. We reiterate our expectation to grow annual revenue by an average of 5% and deliver an EBITA margin of 10% as from the end of 2018."
Kendrion's strategy for 2016-2018, as announced in May 2016, comprises three pillars: "Simplify, Focus, Grow". The primary objective is to deliver sustainable profitable growth for the business in the medium to long term.
During 2016 and the first half of 2017, we have made good progress implementing the strategy and the related simplification measures. Following the review of operations in China last year and the integration of the Nanjing facility into the main Kendrion facility in Suzhou, we have recently selected a new facility for further expansion of our production capacity in Suzhou, China. With this facility, which is expected to be operational in the first half of 2018, we will more than double the size of our current production capacity.
On the back of strong business fundamentals and our leading position in permanent magnet brakes, we have also decided to invest in additional production capacity for these products in Villingen, Germany.
The cost reductions and restructuring measures implemented in Q2 resulted in one-off costs of EUR 0.8 million in the second quarter of 2017. Together with the simplification measures taken in the first quarter, one-off costs in the first half year totalled EUR 2.0 million with corresponding savings on an annualised basis of EUR 1.8 million. Kendrion expects to implement additional simplification measures across its business units over the next three quarters. For the full year 2017, one-off costs of around EUR 4 million are anticipated, with corresponding savings of EUR 3 million on an annualised basis.
Revenue in the second quarter of 2017 was 2.8% higher at EUR 117.3 million compared to the second quarter of 2016 (EUR 114.1 million). The Industrial activities grew by 2.7% (3.1% at constant exchange rates), while Automotive posted an increase of 2.8% (2.7% at constant exchange rates).
In the first half of 2017 our Industrial activities posted 4.5% growth (4.7% at constant exchange rates) in revenue, primarily as a result of growth in Industrial Drive Systems. Revenue of the Automotive activities increased by 4.5% (4.2% at constant exchange rates), with this growth being driven by Passenger Cars. This resulted in overall revenue growth of 4.5% (4.4% at constant exchange rates) in the first half of the year.
The normalised operating result before amortisation (EBITA) increased by 23% to EUR 10.6 million (Q2 2016: EUR 8.6 million) as improving market conditions amplified the positive effect of our simplification measures. Despite the higher activity level and wage inflation, staff costs and operating expenses were in
line with last year. The normalised EBITA margin improved in line with the increased normalised EBITA from 7.5% in Q2 2016 to 9.0% in Q2 2017.
Normalised EBITA in HY1 2017 increased to EUR 21.1 million (HY1 2016: EUR 16.4 million). Normalised EBITA margin was 9.0% (HY1 2016: 7.3%) with an increase in profitability across all business units.
Normalised EBITA for the Industrial activities increased to EUR 8.4 million from EUR 6.6 million in the same period last year. This increase was particularly driven by a better performance of Industrial Drive Systems and the effect of simplification measures within Industrial Control Systems.
The Automotive activities posted normalised EBITA of EUR 13.2 million, compared to EUR 10.0 million in HY1 2016. The improvement in profitability is primarily attributable to Passenger Cars.
Net finance costs of EUR 1.4 million in the first six months of 2017 were in line with last year.
Income tax expenses for HY1 2017 stood at EUR 3.9 million (HY1 2016: EUR 2.3 million). The normalised effective tax rate in the first six months of 2017 was 24.3% (HY1 2016: 22.7%), slightly up on last year due to a different country mix.
Normalised net profit in HY1 2017 was EUR 13.7 million (HY1 2016: EUR 10.1 million). Basic earnings per share amounted to EUR 1.02 (HY1 2016: EUR 0.76). Including restructuring costs, net profit in HY1 2017 amounted to EUR 12.2 million.
The net debt position was EUR 62.2 million at the end of the second quarter. The EUR 3.2 million increase from the end of the first quarter was due entirely to the cash dividend payment of EUR 6.6 million and negative currency results on cash positions totalling EUR 0.7 million, which is partly offset by the free cash flow of EUR 4.2 million. Free cash flow in the first six months amounted to EUR -0.8 million.
Capital expenditure totalled EUR 11.0 million in the first half of 2017, slightly above the depreciation level. Investments for the full year 2017 are expected to be higher than the depreciation level, largely due to new automotive projects and capacity expansions in Industrial Drive Systems.
Kendrion's financial position is strong with a solvency ratio of 49.7% at the end of June 2017.
The number of employees (FTEs) at the end of the second quarter amounted to a total of 2,627, including 127 temporary employees (Q2 2016: 2,647 employees, including 100 temporary employees).
The Industrial activities consist of Industrial Magnetic Systems, Industrial Control Systems and Industrial Drive Systems.
The higher activity level in the first quarter of 2017 continued during the second quarter for Kendrion's Industrial activities, which account for 35% of revenue. Revenue increased by 4.5% to EUR 81.3 million in HY1 2017 compared to HY1 2016 (EUR 77.8 million). This increase was driven mainly by continuing strong demand for servo motor brakes in Industrial Drive Systems for, amongst other things, industrial robots.
Industrial Magnetic Systems, Industrial Control Systems and Industrial Drive Systems all increased their profitability in the first half of 2017. In the case of Industrial Control Systems, this was mainly the result of simplification measures while Industrial Drive Systems benefitted from higher activity levels. Despite the closure of the Swiss production facility, also Industrial Magnetic Systems posted good revenue growth, especially in China and the United States.
Industrial saw its normalised EBITA margin improve to 10.4% (HY1 2016: 8.5%).
The Automotive activities consist of Passenger Cars and Commercial Vehicles.
Automotive activities, which account for 65% of Kendrion's revenue, posted 4.5% revenue growth to EUR 154.3 million in the first six months of 2017 (HY1 2016: EUR 147.6 million). Within the Automotive market, Passenger Cars continued to benefit from the ramp-up of the production of the active damping valves for ThyssenKrupp Bilstein and saw both its revenue and profitability increase in the second quarter. Market conditions for light duty vehicles are good, while the heavy truck market in North America started to see a pick-up in orders. Commercial Vehicles had good revenue growth in North America and the Czech Republic, but saw a slight decline in overall revenues as a direct result of the closure of its facility in Brazil and discontinuation of operations in India that reduced Automotive growth by 2.5%.
Automotive saw its normalised EBITA margin improve to 8.6% (HY1 2016: 6.8%).
The overall outlook for the global economy has improved further during the second quarter of 2017. Kendrion's most important market, Germany, is expected to achieve slight economic growth and the German machine building index is also picking up. Kendrion expects its revenue to increase in 2017, driven mostly by growth in the Passenger Cars business unit.
Going forward, we remain confident about our business fundamentals and our main objective to deliver sustainable profitable growth for the business in the medium to long term. We reiterate our medium- to long-term outlook of expected average organic growth of 5% per year and a 10% EBITA margin as from the end of 2018.
Kendrion will repurchase 121,586 ordinary shares to neutralise the dilutive effect of the 2016 final stock dividend and share-based incentive plans. These shares will be held as treasury shares and will be used to pay future stock dividends and share-based incentive plans. Kendrion is committed to the repurchase of the ordinary shares by engaging a third party to execute the transactions on its behalf.
These transactions will commence on 21 August 2017 and will run until no later than 29 December 2017. Kendrion will provide weekly updates on the transactions on www.kendrion.com. The first progress report will be published on Monday, 28 August 2017.
Kendrion CEO Joep van Beurden and CFO Frank Sonnemans will present the interim results on Wednesday, 16 August 2017 at 11:30 a.m. CET. A live audio webcast will be available via the company website www.kendrion.com with playback facilities.
Kendrion develops, manufactures and markets high-quality electromagnetic systems and components for industrial and automotive applications. For over a century, we have been engineering precision parts for the world's leading innovators in passenger cars, commercial vehicles and industrial applications. As a leading technology pioneer, Kendrion invents, designs and manufactures complex components and customised systems as well as local solutions on demand.
We are committed to the engineering challenges of tomorrow, and taking responsibility for how we source, manufacture and conduct business is embedded into our culture of innovation. Rooted in Germany, headquartered in the Netherlands and listed on the Amsterdam stock exchange, Kendrion's expertise extends across Europe to the Americas and Asia. Created with passion and engineered with precision. Kendrion - we magnetise the world.
The Executive Board declares that, with due regard for what has been described in this report, to its knowledge, (i) the semi-annual financial statements give a true and fair view of the assets, liabilities, financial position and profits of Kendrion N.V. and the companies jointly included in the consolidation, and (ii) the semi-annual report gives a true and fair overview of the information required pursuant to Article 5- 25d sub 8 and 9 of the Netherlands Financial Supervision Act.
Zeist, 16 August 2017
The Executive Board
Kendrion N.V. Mr Joep van Beurden Chief Executive Officer Tel: +31 - 30 - 699 72 68 Email: [email protected] Website: www.kendrion.com
| Publication of HY1 2017 results | Wednesday, 16 August 2017 | 08.00 a.m. |
|---|---|---|
| Analysts' meeting | Wednesday, 16 August 2017 | 11.30 a.m. |
| Publication of Q3 2017 results | Wednesday, 8 November 2017 | 08.00 a.m. |
| Analysts' call | Wednesday, 8 November 2017 | 11.00 a.m. |
| Publication of FY 2017 results | Wednesday, 21 February 2018 | 08.00 a.m. |
|---|---|---|
| Analysts' meeting | Wednesday, 21 February 2018 | 11.00 a.m. |
| General Meeting of Shareholders | Monday, 9 April 2018 | 02.30 p.m. |
| Publication of Q1 2018 results | Wednesday, 9 May 2018 | 08.00 a.m. |
| Analysts' call | Wednesday, 9 May 2018 | 11.00 a.m. |
| Publication of HY1 2018 results | Wednesday, 15 August 2018 | 08.00 a.m. |
| Analysts' meeting | Wednesday, 15 August 2018 | 11.00 a.m. |
| Publication of Q3 2018 results | Wednesday, 7 November 2018 | 08.00 a.m. |
| Analysts' call | Wednesday, 7 November 2018 | 11.00 a.m. |
S E M I - A N N U A L C O N D E N S E D F I N A N C I A L S T A T E M E N T S 2 0 1 7
| (EUR million) | Q2 2017 |
Q2 2016 |
half year 2017 |
half year 2016 |
full year 2016 |
|---|---|---|---|---|---|
| Revenue | 117.3 | 114.1 | 235.6 | 225.4 | 443.4 |
| Other income | 0.0 | 0.0 | 0.0 | 0.0 | 0.1 |
| Total revenue and other income | 117.3 | 114.1 | 235.6 | 225.4 | 443.5 |
| Changes in inventories of finished goods and work in progress | (0.4) | (1.3) | (3.0) | (1.8) | 0.5 |
| Raw materials and subcontracted work | 60.8 | 60.8 | 124.2 | 118.2 | 230.0 |
| Staff costs | 33.8 | 33.3 | 68.5 | 68.9 | 132.6 |
| Depreciation and amortisation | 6.0 | 6.1 | 11.9 | 12.1 | 24.0 |
| Other operating expenses | 8.1 | 8.3 | 16.5 | 17.0 | 34.7 |
| Result before net finance costs | 9.0 | 6.9 | 17.5 | 11.0 | 21.7 |
| Finance income | 0.0 | 0.0 | 0.0 | 0.0 | 0.1 |
| Finance expense | (0.8) | (0.7) | (1.4) | (1.4) | (3.2) |
| Net finance costs | (0.8) | (0.7) | (1.4) | (1.4) | (3.1) |
| Profit before income tax | 8.2 | 6.2 | 16.1 | 9.6 | 18.6 |
| Income tax expense | (2.0) | (1.5) | (3.9) | (2.3) | (3.7) |
| Profit for the period | 6.2 | 4.7 | 12.2 | 7.3 | 14.9 |
| Other comprehensive income | |||||
| Remeasurements of defined benefit plans* | - | - | (1.9) | ||
| Foreign currency translation differences for foreign operations** | (4.7) | (2.0) | 1.3 | ||
| Net change in fair value of cash flow hedges, net of income tax** | 0.6 | (0.2) | (0.2) | ||
| Other comprehensive income for the period, net of income tax | (4.1) | (2.2) | (0.8) | ||
| Total comprehensive income for the period | 8.1 | 5.1 | 14.1 | ||
| Basic earnings per share (EUR), based on weighted average | 0.46 | 0.36 | 0.91 | 0.55 | 1.12 |
| Diluted earnings per share (EUR) | 0.46 | 0.36 | 0.91 | 0.55 | 1.12 |
*This item will never be reclassified to profit or loss.
**These items may be reclassified to profit or loss.
1 Not adjusted for non-recurring items
| (EUR million) | 30 June 2017 |
30 June 2016 |
31 Dec. 2016 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 84.6 | 81.3 | 85.5 |
| Intangible assets | 121.0 | 124.8 | 124.5 |
| Other investments, including derivatives | 0.3 | 0.5 | 0.4 |
| Deferred tax assets | 14.5 | 15.3 | 16.0 |
| Total non-current assets | 220.4 | 221.9 | 226.4 |
| Current assets | |||
| Inventories | 58.9 | 56.5 | 52.6 |
| Current tax assets | 1.2 | 1.1 | 1.2 |
| Trade and other receivables | 67.3 | 62.0 | 54.5 |
| Cash and cash equivalents | 13.7 | 12.1 | 12.4 |
| Total current assets | 141.1 | 131.7 | 120.7 |
| Total assets | 361.5 | 353.6 | 347.1 |
| Equity and liabilities | |||
| Equity | |||
| Share capital | 27.0 | 26.8 | 26.8 |
| Share premium | 49.6 | 56.4 | 56.4 |
| Reserves | 90.9 | 78.6 | 80.0 |
| Retained earnings | 12.2 | 7.3 | 14.9 |
| Total equity | 179.7 | 169.1 | 178.1 |
| Liabilities | |||
| Loans and borrowings | 64.4 | 84.1 | 63.0 |
| Employee benefits | 21.3 | 19.8 | 21.4 |
| Deferred tax liabilities | 10.4 | 11.1 | 10.9 |
| Total non-current liabilities | 96.1 | 115.0 | 95.3 |
| Bank overdraft | 10.8 | 6.0 | 2.7 |
| Loans and borrowings | 0.7 | 0.7 | 0.7 |
| Provisions | 0.5 | 1.4 | 1.2 |
| Current tax liabilities | 1.6 | 1.3 | 0.7 |
| Trade and other payables | 72.1 | 60.1 | 68.4 |
| Total current liabilities | 85.7 | 69.5 | 73.7 |
| Total liabilities | 181.8 | 184.5 | 169.0 |
| Total equity and liabilities | 361.5 | 353.6 | 347.1 |
| (EUR million) | half year 2017 |
half year 2016 |
full year 2016 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Profit for the period | 12.2 | 7.3 | 14.9 |
| Adjustments for: | |||
| Net finance costs | 1.4 | 1.4 | 3.1 |
| Income tax expense | 3.9 | 2.3 | 3.7 |
| Depreciation of property, plant and equipment and software | 10.3 | 10.2 | 20.3 |
| Amortisation of other intangible assets | 1.6 | 1.9 | 3.7 |
| Impairment of property, plant and equipment | 0.1 | - | 0.5 |
| Share-based payments | 0.3 | 0.2 | 0.2 |
| 29.8 | 23.3 | 46.4 | |
| Change in trade and other receivables | (13.1) | (13.8) | (5.7) |
| Change in inventories | (7.0) | (4.4) | (0.4) |
| Change in trade and other payables | 4.4 | 2.3 | 10.2 |
| Change in provisions | (0.8) | 0.5 | 0.0 |
| 13.3 | 7.9 | 50.5 | |
| Interest paid | (1.3) | (1.4) | (2.7) |
| Interest received | 0.0 | 0.1 | 0.2 |
| Tax paid | (1.8) | (0.6) | (3.8) |
| Net cash flows from operating activities | 10.2 | 6.0 | 44.2 |
| Cash flows from investing activities | |||
| Investments in property, plant and equipment | (8.8) | (7.7) | (20.9) |
| Disinvestments of property, plant and equipment | 0.3 | 0.0 | 0.6 |
| Investments in intangible fixed assets | (2.5) | (1.5) | (2.9) |
| Disinvestments of intangible fixed assets | 0.0 | 0.2 | 0.3 |
| (Dis)investments of other investments | (0.0) | 0.0 | 0.0 |
| Net cash from investing activities | (11.0) | (9.0) | (22.9) |
| Free cash flow | (0.8) | (3.0) | 21.3 |
| Cash flows from financing activities | |||
| Proceeds from borrowings (non current) | 1.3 | 14.6 | - |
| Repayment of borrowings (non current) | - | - | (6.6) |
| Proceeds from borrowings (current) | 0.0 | - | - |
| Repayment of borrowings (current) | - | (0.0) | (0.0) |
| Proceeds from the issue of share capital | 0.0 | 0.0 | 0.0 |
| Dividends paid | (6.6) | (6.1) | (6.1) |
| Net cash from financing activities | (5.3) | 8.5 | (12.7) |
| Change in cash and cash equivalents | (6.1) | 5.5 | 8.6 |
| Cash and cash equivalents at 1 January | 9.7 | 1.2 | 1.2 |
| Effect of exchange rate fluctuations on cash held | (0.7) | (0.6) | (0.1) |
| Cash and cash equivalents at period end | 2.9 | 6.1 | 9.7 |
| (EUR million) | Share capital |
Share premium |
Translation reserve |
Hedge reserve |
Other reserves |
Retained earnings |
Total equity |
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2016 | 26.4 | 62.7 | 10.3 | (0.1) | 53.8 | 16.8 | 169.9 |
| Total comprehensive income for the period | |||||||
| Profit or loss | - | - | - | - | - | 14.9 | 14.9 |
| Other comprehensive income | |||||||
| Remeasurements of defined benefit plans | - | - | - | - | (1.9) | - | (1.9) |
| Foreign currency translation differences for foreign operations | - | - | 1.3 | - | - | - | 1.3 |
| Net change in fair value of cash flow hedges, net of income tax | - | - | - | (0.2) | - | - | (0.2) |
| Other comprehensive income for the period, net of income tax | - | - | 1.3 | (0.2) | (1.9) | - | (0.8) |
| Total comprehensive income for the period | - | - | 1.3 | (0.2) | (1.9) | 14.9 | 14.1 |
| Transactions with owners, recorded directly in equity | |||||||
| Contributions by and distributions to owners | |||||||
| Issue of ordinary shares | 0.4 | 3.8 | - | - | - | - | 4.2 |
| Share-based payment transactions | 0.0 | 0.2 | - | - | 0.0 | - | 0.2 |
| Dividends to equity holders | - | (10.3) | - | - | - | - | (10.3) |
| Appropriation of retained earnings | - | - | - | - | 16.8 | (16.8) | - |
| Balance at 31 December 2016 | 26.8 | 56.4 | 11.6 | (0.3) | 68.7 | 14.9 | 178.1 |
| Share | Share | Translation | Hedge | Other | Retained | Total | |
|---|---|---|---|---|---|---|---|
| (EUR million) | capital | premium | reserve | reserve | reserves | earnings | equity |
| Balance at 1 January 2017 | 26.8 | 56.4 | 11.6 | (0.3) | 68.7 | 14.9 | 178.1 |
| Total comprehensive income for the period | |||||||
| Profit or loss | - | - | - | - | - | 12.2 | 12.2 |
| Other comprehensive income | |||||||
| Remeasurements of defined benefit plans | - | - | - | - | - | - | - |
| Foreign currency translation differences for foreign operations | - | - | (4.7) | - | - | - | (4.7) |
| Net change in fair value of cash flow hedges, net of income tax | - | - | - | 0.6 | - | - | 0.6 |
| Other comprehensive income for the period, net of income tax | - | - | (4.7) | 0.6 | - | - | (4.1) |
| Total comprehensive income for the period | - | - | (4.7) | 0.6 | - | 12.2 | 8.1 |
| Transactions with owners, recorded directly in equity | |||||||
| Contributions by and distributions to owners | |||||||
| Issue of ordinary shares | 0.2 | 3.5 | - | - | - | - | 3.7 |
| Share-based payment transactions | 0.0 | 0.2 | - | - | 0.1 | - | 0.3 |
| Dividends to equity holders | - | (10.5) | - | - | - | - | (10.5) |
| Appropriation of retained earnings | - | - | - | - | 14.9 | (14.9) | - |
| Balance at 30 June 2017 | 27.0 | 49.6 | 6.9 | 0.3 | 83.7 | 12.2 | 179.7 |
| half year | half year | |
|---|---|---|
| EUR million | 2017 | 2016 |
| Reported result before net finance costs | 17.5 | 11.0 |
| Reported amortisation | 1.6 | 2.0 |
| Reported EBITA | 19.1 | 13.0 |
| One-off costs related to simplifying measures | 2.0 | 3.4 |
| Normalised EBITA | 21.1 | 16.4 |
| Reported amortisation | (1.6) | (2.0) |
| Reported net finance costs | (1.4) | (1.4) |
| Normalised profit before income tax | 18.1 | 13.0 |
| Reported income tax expense | (3.9) | (2.3) |
| Impact symplifying measures on income tax expense | (0.5) | (0.6) |
| Normalised profit for the period | 13.7 | 10.1 |
Pages 62 to 70 of Kendrion N.V.'s 2016 Annual Report include a review of the risks faced by the company in conducting its business operations.
Kendrion's approach to the company's risk management is categorised into the following groups:
In the 2016 Annual Report, the following risks were identified as the most important risks:
These issues continue to be the main points for Kendrion.
During HY2 2017 Kendrion will update its strategic and business risk assessment.
Kendrion N.V. (the "Company") has its registered office in Zeist, the Netherlands. The Company's condensed consolidated interim report for the first six months of 2017 covers the Company and its subsidiaries (collectively referred to as the "Group") and the Group's interests in associates.
The Group's Annual Report for the financial year 2016 is available on request from the Company's registered office at Utrechtseweg 33, Zeist, the Netherlands or on www.kendrion.com.
This condensed consolidated interim report is prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34, Interim Financial Reporting. The interim report does not contain all the information required for annual financial statements and should be read in conjunction with the Group's 2016 consolidated financial statements.
This condensed consolidated interim report is approved by the Executive Board and the Supervisory Board on 15 August 2017.
The accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2016.
The preparation of the interim reports requires the Executive Board to make judgements, estimates and assumptions that affect the application of accounting principles, the reported value of assets and liabilities, and the size of the Group's income and expenditure. Note that the actual results may differ from these estimates.
Unless otherwise specified below, in the preparation of this condensed consolidated interim report, important opinions formed by management in applying the Group's accounting principles, and the main sources of estimation used are equal to the opinions and sources used in preparing the consolidated financial statements for the financial year 2016.
The Group's objectives and policy relating to financial risk management are identical to the objectives and policy set out in the 2016 consolidated financial statements of the Group.
Based on the structure of the Group and the criteria of IFRS 8-Operating segments Kendrion has concluded that the business units are the operating segments within the Group. Based on the aggregation criteria of IFRS 8, these operating segments have been aggregated into two reportable segments: the Industrial activities and the Automotive activities.
| Industrial Automotive |
Corporate activities | Consolidated | ||||||
|---|---|---|---|---|---|---|---|---|
| (x EUR 1 million unless otherw ise stated) |
HY1 2017 | HY1 2016 | HY1 2017 | HY1 2016 | HY1 2017 | HY1 2016 | HY1 2017 | HY1 2016 |
| Revenue from transactions with third parties | 81.3 | 77.8 | 154.3 | 147.6 | - | - | 235.6 | 225.4 |
| Inter-segment revenue | 0.1 | 0.1 | 0.3 | 0.4 | - | - | 0.4 | 0.5 |
| EBITA | 6.9 | 5.4 | 12.7 | 8.4 | (0.5) | (0.8) | 19.1 | 13.0 |
| EBITA margin | 8.5% | 6.9% | 8.2% | 5.7% | - | - | 8.1% | 5.8% |
| EBITA1 | 8.4 | 6.6 | 13.2 | 10.0 | (0.5) | (0.2) | 21.1 | 16.4 |
| EBITA margin1 | 10.4% | 8.5% | 8.6% | 6.8% | 9.0% | 7.3% | ||
| Reportable segment assets | 118.9 | 114.2 | 225.7 | 214.0 | 16.9 | 25.4 | 361.5 | 353.6 |
Kendrion is not significantly affected by seasonal trends. In general, however, there are fewer working days in the second half of the year due to the summer holiday periods in the third quarter and the bank holidays in December.
The table below shows the main exchange rates during the first half of 2017.
| At 30 June | At 31 December | Average over | |
|---|---|---|---|
| Value of EUR | 2017 | 2016 | HY1 2017 |
| Pound sterling | 0.8793 | 0.8562 | 0.8597 |
| Swiss franc | 1.0930 | 1.0739 | 1.0770 |
| Czech koruna | 26.1972 | 27.0212 | 26.8010 |
| Chinese yuan | 7.7385 | 7.3202 | 7.4615 |
| US dollar | 1.1412 | 1.0541 | 1.0861 |
| Mexican peso | 20.5838 | 21.7718 | 21.1175 |
| Brazilian real | 3.7600 | 3.4305 | 3.4651 |
| Romanian lei | 4.5523 | 4.5390 | 4.5374 |
| Indian rupee | 73.7463 | 71.5922 | 71.4950 |
| Swedish krona | 9.6398 | 9.5525 | 9.5749 |
As at 30 June 2017, the Group had agreements outstanding for the acquisition of property, plant and equipment in the amount of EUR 5.1 million (versus EUR 5.1 million as at 30 June 2016).
During the first half of 2017, as well as in previous periods, Kendrion assessed whether there were indications during this period for impairments adjusting goodwill or other key assets, and the conclusion was that there was no need for impairment.
As at 30 June 2017, deferred tax assets amounted to EUR 14.5 million, of which a total of EUR 7.0 million relates to the valuation of tax losses carried forward and can be specified as follows:
| Germany | EUR 4.6 million |
|---|---|
| United States of America | EUR 1.3 million |
| The Netherlands | EUR 1.1 million |
In May 2017, the optional dividend of EUR 0.78 per share was paid to shareholders. A total cash dividend was paid of EUR 6.6 million, and a total of 115,157 shares were issued.
The table below shows the number of outstanding shares as at 30 June 2017.
| Shares entitled | Shares owned | Total number of | |
|---|---|---|---|
| to dividend | by Kendrion | issued shares | |
| At 1 January 2017 | 13,396,034 | - | 13,396,034 |
| Issued shares (share dividend) | 115,157 | - | 115,157 |
| Issued registered shares (share plan) | 6,429 | - | 6,429 |
| Delivered shares | 1,843 | (1,843) | - |
| Repurchased shares | (1,843) | 1,843 | - |
| At 30 June 2017 | 13,517,620 | - | 13,517,620 |
As at 30 June 2017, the Group had the following credit lines available:
As at 30 June 2017, the total unutilised amount of the credit facilities was approximately EUR 80 million.
Pursuant to the terms of the credit facility with the banking syndicate, the Group has agreed to financial covenants relating to the leverage ratio (interest-bearing debt / EBITDA) and interest coverage (EBITDA / interest costs). In accordance with these covenants, the leverage ratio should remain below 3.0, which can under certain circumstances be temporarily increased to a maximum of 3.5. The interest cover should always exceed 4.0. Both covenants are tested quarterly on a 12-month rolling basis. All covenant ratios were satisfied at 30 June 2017.
The Group has provided a mortgage on its premises in Malente, Germany regarding a EUR 4.0 million loan. No security is provided in relation to the EUR 150.0 million credit facility.
The tax expense for the first six months was EUR 3.9 million, equivalent to a 24% effective tax rate.
As at 30 June 2017 the value of the derivative instruments in the balance sheet is a EUR 0.6 million liability (31 December 2016: EUR 0.5 million liability).
There have been no material changes since the end of 2016 in terms of sensitivity to market risks (i.e. currency, interest and price).
There have been no material changes since the end of 2016 regarding the contingent liabilities as per note 18 of the Group's Annual Report for the financial year 2016.
For the definition of "related parties", please refer to note 27 of the Group's Annual Report for the financial year 2016.
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