KHD Humboldt Wedag International AG / Release of an announcement according to
Article 37x of the WpHG [the German Securities Trading Act]
08.11.2013 08:01
Interim report according to Article 37x of the WpHG, transmitted by
DGAP - a company 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 8, 2013
ISIN: DE0006578008
German Securities Identification Number (WKN): 657800
Stock Exchange Symbol: KWG
www.khd.com
Summary - First Nine Months of 2013
- Continuing slow market conditions lead to decline in order intake
- Revenue up by 26% thanks to ongoing execution of major projects
- Gross profit down compared to previous year, due to lower margin
quality in order backlog, pass through revenues with zero margin and
several difficulties in project execution
- Increase in EBIT through strict cost control measures; improved
earnings per share
- Negative operating cash flow caused by ongoing project execution
- Confirmation of guidance for 2013 financial year
Key Figures at a Glance
<pre>
Jan. 1 - Jan. 1 - Variance
in EUR million Sept. 30, 2013 Sept. 30, 2012 in %
Order Intake 82.8 282.9 -70.7
Revenue 181.5 144.0 26.0
Gross profit 24.5 30.2 -18.9
Gross profit margin (in %) 13.5 20.9
EBIT 4.1 3.5 17.1
EBIT margin (in %) 2.3 2.4
EBT 5.1 6.1 -16.4
Group net profit for the
period 3.6 0.8 437.5
Earnings per share (in EUR) 0.07 0.02 350.0
Cash flow from operating
activities (44.2) (28.4) -55.6
Cash flow from investing
activities (0.6) (2.6) 77.9
Cash flow from financing
activities (32.8) 14.9
Variance
in EUR million Sept. 30, 2013 Dec. 31, 2012 in %
Equity 225.2 229.3* -1.8
Equity ratio (in %) 54.2 52.6* 3.0
Cash and cash equivalents 231.4 282.6 -18.1
Order backlog 392.3 491.0 -20.1
Employees 763 783 -2.4
</pre>
* Amounts adjusted due to change in accounting policy for pension benefit
obligations
Market Environment
The global economy remains sluggish, particularly due to weak growth in key
emerging economies. On the other hand, some developed economies are
generating positive momentum. Growth in the United States has picked up
despite fiscal risks. In the second quarter the Eurozone recorded positive
growth for the first time in two years, which mainly reflects the favorable
trend in Germany.
In October, the International Monetary Fund (IMF) reduced its forecast for
2013 as a whole to 2.9% (2012: 3.2%). For the developing and emerging
economies, the IMF now predicts growth of just 4.5% (2012: 5.1%):
- The development in India was disappointing. The IMF reduced its growth
forecast to 3.8% (previous year: 4.0%). The industry is suffering due
to the slow pace of infrastructure development as well as regulatory
obstacles. Companies and consumers are also struggling due to inflation
which remains high.
- The IMF has also significantly cut its growth forecast for Russia,
which is now 1.5% (previous year: 3.4%). However, the cement industry
is continuing to benefit from the infrastructure investments for the
Winter Olympic Games 2014 and the FIFA World Cup 2018 as well as
private housing construction.
- The Turkish economy remains in recovery mode and will likely achieve a
growth rate of 3.8% (previous year: 2.2%) for the year as a whole. In
the period under review, the cement industry has benefited, in
particular, from a government investment program backing the
construction of earthquake-proof housing.
- The economic trend in Latin America has been curbed by inadequate
infrastructure, lower raw materials prices and also, in some cases, by
a tightening of monetary policy. For the year as a whole, the IMF
predicts growth of 2.7% (previous year: 2.9%).
- The economies of the emerging markets in Southeast Asia, relevant to
KHD, slowed down considerably. Indonesia, Malaysia and Thailand are
dealing with slower growth rates.
- With a predicted growth rate of 7.6%, China will grow at a slightly
slower pace than in the previous year (7.8%).
In the medium-to-long term, factors such as ongoing urbanization,
demographic trends, and infrastructural needs in developing and emerging
economies will drive construction activities and boost cement consumption.
The emerging economies in particular have contributed significantly to the
growth of cement consumption and are forecast to remain key drivers of
growth in the future. China remains the largest single market with a share
of 59% of global cement consumption.
Business Development
In the first nine months of the year, order intake amounted to EUR 82.8
million (EUR 97.3 million without the currency impact), compared to EUR
282.9 million in the same period in 2012. This clear decrease compared to
the previous year's level - which was affected by several major contracts -
is attributable primarily to investment restraint in the cement industry.
Currency translation differences also had a negative effect amounting to
EUR 14.5 million. In the third quarter of the year, the spare parts and
service business once again accounted for a high proportion of the order
intake.
The order backlog dropped by EUR 98.7 million (-20.1%) to EUR 392.3 million
in comparison with December 31, 2012, due to the lower order intake and the
ongoing execution of the order backlog.
Results of Operations
Revenue rose by 26.0% compared with the previous year (EUR 144.0 million)
to EUR 181.5 million. This increase mainly reflects the ongoing project
execution of orders awarded in previous years. Gross profit fell to EUR
24.5 million in the reporting period (previous year: EUR 30.2 million).
Gross profit margin declined from 20.9% to 13.5%. Income related to the
license agreement with Weir Minerals and releases of provisions due to
successful work after the completion of deliveries positively affected
gross profit margin. However, gross profit margin deteriorated, which was
mainly caused by low margin orders in the order backlog that were won under
fierce market conditions and high margin pressure. In addition, the
execution of a major project in Malaysia had an adverse impact on gross
profit margin. A significant portion of this order is for structural steel
and general erection works. This scope has been passed through to KHD's
strategic partner AVIC with no additional gross profit for KHD. Finally,
several difficulties in project execution, including the termination of a
contract at our CSC Americas, had an adverse impact on gross profit margin.
KHD is currently focusing its sales and tendering activities on
strategically important projects with solid margins in its core markets.
Therefore, sales expenses decreased by 32.0% to EUR 7.0 million (previous
year: EUR 10.3 million).
The Group's strict cost management program is continuing to pay off with
regard to general and administrative expenses and other expenses. General
and administrative expenses were 7.8% lower than in the previous year at
EUR 11.9 million (EUR 12.9 million). This mainly reflects savings in
consulting costs. Other expenses declined by 13.5% to EUR 4.5 million
(previous year: EUR 5.2 million).
Other operating income amounting to EUR 3.0 million (previous year: EUR 1.8
million) includes payments of EUR 2.1 million relating to contingent
purchase consideration agreed in 2009 as part of the sale of the workshop
in Cologne.
Thanks to overhead cost savings amounting to EUR 5.1 million, earnings
before interest and tax (EBIT) reached EUR 4.1 million and were EUR 0.6
million higher than in the previous year (EUR 3.5 million).
Finance income consists mainly of interest income from the investment of
cash and cash equivalents. As expected net finance result of EUR 1.0
million failed to reach the previous year's level of EUR 2.6 million, due
to historically low interest-rates as well as the declining liquidity
volume. Earnings before tax (EBT) thus amount to EUR 5.1 million (previous
year: EUR 6.1 million).
Net profit for the period came to EUR 3.6 million (previous year: EUR 0.8
million). The net profit for the period translates into diluted and basic
earnings per share of EUR 0.07 (previous year: EUR 0.02).
Financial Position and Net Assets
Total cash and cash equivalents fell by EUR 51.2 million to EUR 231.4
million in the first nine months of 2013. This decrease was mainly
attributable to the cash flow from operating activities in the amount of
EUR -44.2 million (previous year: EUR -28.4 million). On the one hand, this
resulted from the lower volume of advance payments received, due to the low
volume of new business. On the other hand, a significant proportion of
orders is close to completion; in this phase, payments to suppliers
normally exceed incoming payments from customers.
The decline in trade receivables and a simultaneous increase in current
liabilities had the opposite effect.
Further details of the operating cash flow in the first nine months of the
year are presented in the following table:
<pre>
in EUR thousand
Cash flow from construction contracts (including progress
billings) (60,053)
Cash flow from current liabilities and incoming invoices 11,593
Cash flow from decrease in trade receivables 6,985
Cash flow from utilization of provisions (5,831)
Cash inflow from result of the period (EBITDA) 5,831
Other cash inflows and outflows (2,718)
Cash flow from operating activities (44,193)
</pre>
Cash flow from financing activities in the amount of EUR -32.8 million
(previous year: EUR 14.9 million) mainly reflected the use of cash with a
volume of EUR 30.2 million as collateral within the scope of the existing
EUR 130 million bonding line. Excluding this effect - which had no impact
on total cash and cash equivalents - the cash flow from financing
activities amounted to EUR -2.6 million. This includes cash outflows
resulting from the dividend payment of EUR 4.5 million.
Cash flow from investing activities (EUR -0.6 million) did not have any
significant impact on the development of cash and cash equivalents.
On the assets side of the balance sheet, current assets decreased by EUR
18.9 million to EUR 399.3 million. This decline resulted primarily from the
reduction in cash and cash equivalents (EUR -51.2 million), which
contrasted with an increase in the gross amount due from customers for
contract work (EUR 41.0 million).
The liabilities side of the balance sheet was characterized by a decrease
of EUR 19.3 million in the commitments under construction contracts and a
reduction of equity by EUR 4.1 million. In contrast, accounts payable and
accrued expenses increased by EUR 9.9 million. The decrease in equity to
EUR 225.2 million has resulted mainly from the EUR 4.5 million dividend
payment.
As of September 30, 2013, the Group's equity corresponds to an equity ratio
of 54.2% (December 31, 2012: 52.6%).
Risks and Opportunities
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
known risks. The risks identified do not pose a threat to the KHD Group as
a going concern, either individually or in combination.
There has been no significant change in the assessment of risks and
opportunities since December 31, 2012. Please refer to the relevant section
in the KHD Group management report as of December 31, 2012 (page 45 ff. of
the Group Annual Report).
Outlook
The IMF envisages that many emerging economies will face lower growth
levels not just over the next few years, but also in the longer term.
However, the analysts of the CW Group expect that cement consumption will
pick up in 2014 in all of KHD's Customer Service Center regions, with the
exception of Europe. Nevertheless, cement producers are expected to remain
cautious in expanding their capacities, since market trends are currently
difficult to foresee and many regions are characterized by surplus
capacities and low utilization rates in existing plants.
For KHD notable risks exist in connection with the slow economic recovery.
Setbacks may lead to further delays in the Group's order intake and order
execution. The focus in the fourth quarter and the following year will
remain on executing existing orders while improving efficiency and
profitability.
Despite continuous deterioration of the market conditions, KHD basically
confirms the outlook provided in its 2012 Annual Report regarding the
economic development of the Group. However, postponements in order intake
and execution had a negative impact on cash flow from operating activities
and on the order backlog.
As KHD executes its order backlog revenues will continue to be positively
affected. As already visible for the first nine months KHD expects
significantly higher revenues for the full year 2013 in comparison to 2012.
KHD expects the cancellation of a major order by the end of 2013. This will
adversely affect the order backlog as well as operational performance in
2014.
Orders won in a highly competitive environment and under margin pressure
will continue to contribute to revenue. Therefore, gross profit margin for
the full year should be roughly equal to that of the first half-year 2013
and thus will not achieve the same level as in 2012.
Thanks to continuous cost optimization, we still expect an increase in EBIT
with an EBIT margin approximately at previous year's level.
Developments after September 30, 2013
AVIC International Engineering Holdings Pte. Ltd., Europe Project
Management Pte. Ltd., Europe Technology Investment Pte. Ltd. and Europe
Engineering Holdings Pte. Ltd. provided notice on October 11, 2013 -
pursuant to Section 10 of the German Securities Acquisition and Takeover
Act (WpÃG) - of their decision to submit a joint voluntary public takeover
offer to all of the shareholders of KHD Humboldt Wedag International AG, to
acquire their ordinary bearer shares against payment of EUR 6.45 per share.
The Supervisory Board and Management Board of KHD Humboldt Wedag
International AG will examine this offer upon its receipt and publish a
statement for the shareholders of KHD Humboldt Wedag International AG
pursuant to Section 27 WpÃG.
The Management Board
Cologne, Germany, November 8, 2013
(s) Jouni Salo (s) Ralph Quellmalz (s) Yizhen Zhu
08.11.2013 DGAP's Distribution Services include Regulatory Announcements,
Financial/Corporate News and Press Releases.
Media archive at www.dgap-medientreff.de and www.dgap.de
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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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DGAP-IRE: KHD Humboldt Wedag International AG: Interim Report Pursuant to Section 37x of the German Securities Trading Act (WpHG)
| Source: EQS Group AG