Nedap’s revenue was up 6% over the first six months of 2016 to €92.0 million (H1 2015: €86.5 million). Excluding the Energy Systems business unit, whose activities are being phased out this year as planned, the growth in revenue amounted to 8%. Operating profit excluding one-off items was up 22% to €7.3 million (H1 2015: €6.0 million), while profit after taxation for the first half of 2016 rose by 5% to €5.8 million (H1 2015: €5.5 million). Earnings per share came in at €0.87 in 2015 (H1 2015: €0.83).
One-off items had a major impact on profits posted in the first six months of 2015 and 2016. This impact is further detailed in the ‘Financial highlights’ section of this report.
Supply chain reorganisation
Nedap’s supply chain reorganisation is on schedule. Framework agreements have been entered into with five strategic suppliers, who will take care of production for Nedap in Central Europe and the Netherlands. Once the outsourcing process is complete, specialist companies with branches in the Netherlands will take care of logistics. The first externally manufactured products are expected to be delivered over the course of 2016, with suppliers taking care of the largest volume in 2017. The outsourcing process is due to be completed by the end of 2017, but can be accelerated or decelerated where necessary, since continuity of customer deliveries is leading.
The insights gained so far confirm the strategic and financial assumptions on which the decision to reorganise the supply chain was based. Outsourcing will lower the cost of sales of our products by around 10% on average. Given the current mix and volume of revenue, this decrease should lead to a structural annual cost reduction of at least €4 million.
Nedap’s balance sheet total will see a structural decrease of at least €10 million due to divestments of tangible fixed assets (machinery and equipment) and a reduction in inventories. Expectations are that the tangible fixed assets can be sold for at least their book value. However, part of the inventories will probably have to be sold at a lower value, which will result in one-off costs. The size of the loss in value can be reliably estimated at the end of 2016.
The outsourcing will have a further positive impact on net working capital thanks to the payment terms agreed with strategic suppliers.
The outsourcing process’ positive financial impact will start to become visible over the course of 2017, with its full effect being shown in 2018.
Costs amounting to €9.2 million were recognised for the supply chain reorganisation in 2015, €7.2 million of which were recognised as restructuring costs and €2 million as non-cash impairment. The outsourcing process also entailed €0.4 million of one-off operating costs in the first half of 2016. Further one-off operating costs are expected for the last six months of 2016 and in 2017. In order to guarantee continuity of deliveries, Nedap may temporarily have larger inventories in 2016 and 2017.
The existing credit facilities are sufficient in order to balance out temporary fluctuations in cash flows. The phase-out of production and logistics activities will create a positive cash flow on balance.
Energy Systems phase-out
The phase-out of the Energy Systems business unit is on schedule. Nedap has stopped investing in the PowerRouter and has greatly reduced this business unit’s number of employees. Commercial activities were suspended as of 1 July and the business unit will be discontinued by the end of 2016. It goes without saying that Nedap will continue to honour the service and guarantee agreements made.
The provisions made for the Energy Systems phase-out in 2014 and 2015 are adequate and current insights present no reason to expect further restructuring costs or impairments.
New Staffing Solutions business unit
The PEP Flex (timesheet processing), PEP Grid (employee scheduling) and PEP Staff (staff administration) propositions for the temporary employment market continued to show positive developments over the first six months of 2016 and have good prospects for growth in revenue for the coming years. Delivering its solutions within a service model, Staffing Solutions makes life easier for the intermediary, the client organisation and the temporary employee. The business unit’s entire revenue is currently earned in the Netherlands, but the feasibility of commencing operations in Belgium is being investigated. Given that the size of the PEP activities has now reached sound levels, a decision has been made to separate them from the Healthcare business unit as of 1 July 2016 and continue them as an independent business unit under the name Staffing Solutions.
Business unit developments
The Healthcare business unit (automation of administrative tasks for healthcare professionals) has made an excellent start to 2016, thanks to numerous new customers on the elderly care market opting for Nedap’s solutions in 2015. Revenue grew significantly as a result. The business unit’s propositions for the mentally handicapped and mental healthcare markets are well received.
The Identification Systems business unit (vehicle and driver identification products and wireless parking systems) also posted increased revenue. All of the unit’s propositions showed growth as a result of the reinforcement of the partner network and a continuous marketing focus. June saw the launch of MACE, a new platform enabling smartphones to be used as access badges. This has increased the product portfolio’s competitive clout.
The Library Solutions business unit (RFID systems for libraries) posted growth over the first six months of 2016 and once again gained new partners. The product portfolio is currently being developed further, in line with the unit’s successful positioning as a technology provider.
Over the first six months of 2016, revenue posted by the Light Controls business unit (power electronics and control systems for the lighting industry) was up on the same period of 2015, partly due to a major contract landed in North America. The new Luxon proposition (light management in the form of software services) has been well received and is increasing the business unit’s commercial prospects. The light management system market is highly dynamic and presents various opportunities and uncertainties. The business unit is evaluating the market opportunities and its competitive position on a regular basis and if necessary, will adjust its strategy accordingly.
Revenue for the UV propositions stayed at the same level as in 2015 and the phase-out of QL and HID products is on schedule.
Revenue posted by the Livestock Management business unit (automation of livestock management processes based on identification of individual animals) was down on 2015. Although revenue in the pig farming sector posted fine growth, it was unable to compensate for the dairy farming sector’s decreased revenue resulting from the low milk prices.
The Retail business unit (security, management and information systems for the retail sector) posted higher revenue in the first six months of 2016, while Loss Prevention’s market share with major international retailers grew further. As a result of lengthy sales cycles, revenue in North America is still only making a limited contribution to the business unit’s growth.
In the United Kingdom, Stock Management has landed a major contract from a leading client, with new software services accounting for a major portion of the order’s value.
Revenue posted by the Security Management business unit (systems for access control and security) is above the level achieved in recent years. The unit landed major contracts in various European countries, which will provide a solid foundation for future growth.
Revenue posted by the Nsecure subsidiary (innovative security solution services) was up on the first six months of 2015.
Nedap’s revenue was up 6% over the first six months of 2016 to €92.0 million (€86.5 million in the same period of 2015). Excluding Energy Systems, this growth amounted to 8%.
Added value (revenue less inventory movements and cost of materials) came in at €63.8 million, which is 69% of revenue (€60.6 million, 70% of revenue in the same period of 2015).
The ‘Subcontracting and other costs’ item grew by €2.0 million to €25.0 million, primarily thanks to higher sales volumes. This item includes €0.4 million of one-off costs for the supply chain reorganisation.
The ‘Salaries and social security costs’ item was up €1.3 million to €27.3 million. This increase is mainly due to a one-off receipt of €1.2 million in the first six months of 2015 from the former pension provider upon settlement of the old pension plan. Nedap had 763 employees as of 30 June 2016 – 2 more than on 30 June 2015 (765 at the end of 2015).
Depreciation and amortisation in the first six months of 2016 was down €0.1 million on 2015, while capitalisation of ‘assets manufactured in-house’ was down €0.2 million.
No exceptional items were recognised during the first six months of 2016. ‘Restructuring costs’ amounting to €0.6 million were recognised in 2015.
Operating profit excluding one-off items was up 22% to €7.3 million (8.0% of revenue). One-off items include the amount of €0.4 million recognised in the ‘Subcontracting and other costs’ item in 2016 and the amount of €1.2 million recognised in the ‘Salaries and social security costs’ item in 2015 following a one-off receipt upon settlement of the old pension plan.
Amounting to €0.1 million, net financing costs were at the same level as in the first six months of 2015. Our associate Nedap France S.A.S.’s share of profit dropped by €0.1 million to €0.2 million.
At €1.2 million, taxation in the first six months remained unchanged compared with the same period in 2015.
Profit after taxation increased by 5% during the first six months of 2016, amounting to €5.8 million or 6.3% of revenue (€5.5 million, 6.4% of revenue in the same period of 2015).
Cash flow from operating activities decreased by €3.2 million, mainly due to advance payment of taxes. Dividends of €8.6 million were paid for 2015. Investment in tangible fixed assets amounted to €3.4 million in the first six months of 2016 (€3.7 million compared with the same period in 2015).
The overall bank debt was €30.0 million as of 30 June, which is well within the available credit limit of €50.0 million.
The balance sheet total was up €6.3 million on year-end 2015 to €117.2 million. This is partly due to an increase in inventory levels (€1.3 million) and trade and other receivables (€5.9 million). The larger inventories are the result of higher sales volumes and the creation of buffer inventories in view of the outsourcing process. As stated earlier, inventories may temporarily be higher than usual for the next eighteen months, so as to guarantee reliable delivery to our customers during the outsourcing process. The increase in trade and other receivables was mainly caused by the higher level of revenue. At 7.2 weeks, the average number of days’ sales outstanding was lower than in 2015 (7.5 weeks).
Provisions decreased by €0.8 million in total, with the short-term provisions rising to €3.9 million.
The ‘Trade and other payables’ item was up €1.4 million due to an increase in purchases in connection with higher inventory levels.
The solvency ratio (equity excluding payable dividends and minority interest divided by the balance sheet total) was 43.1% as of 30 June (45.6% in mid-2015).
The Board of Directors is optimistic about developments over the last few months and expects revenue in the last six months of 2016 to be up on the same period in 2015, unforeseen circumstances notwithstanding. The size of the growth depends on developments on certain markets and orders from individual customers, as well as the general economic climate.
The main risks are described in the Corporate Governance section of the 2015 annual report.
The interim report on the last six months of 2016 will be published on 10 November 2016.