Quarterly Financial Report - Softing AG: Investor Relations

2/2014

Quarterly Financial Report

Revenue up by 32 % to over EUR 33 million Incoming orders rise to nearly EUR 30 million Foundation for igniting further growth laid

Quarterly Financial Report 2/2014

Quarterly report II/2014

Quarterly report II/2013

Six-month report 2014

Six-month report 2013

Incoming orders

12.9

11.7

29.3

27.5

Revenue

17.5

13.3

33.6

25.5

1.0

1.7

2.0

3.1

All figures in EUR million

Earnings (EBIT) Net profit for the year

0.6

1.1

1.3

2.2

Earnings per share in EUR

0.09

0.30

0.21

0.48

Dear Shareholders, Employees, Partners and Friends of Softing AG, Softing successfully completed another two

nostics. The Softing team worked with the pre-

acquisitions in the second quarter of 2014. This

vious employees of Trebing & Himstedt who

has added a pioneering new chapter to our

moved to Softing to smoothly and harmoniously

company’s history. With the takeover of Online

integrate this business, a process which has

Development Inc. (OLDI) in Knoxville, Tennes-

largely been completed.

see, Softing has acquired a company that ideally complements our product portfolio in our core

Together with our organic growth, this will

field of Industrial Automation. For over 20 years,

enable us to achieve new record values in our

OLDI has been a technical leader in the develop-

incoming orders and revenue. Expressed in fig-

ment and manufacture of products for factory

ures, this means that Softing increased its rev-

automation. It focuses on high-quality products

enue to EUR 33.6 million in the first six months,

for control and communication tasks in connec-

generating a profit from operations of EUR 2

tion with controllers from Rockwell Automation,

million and a net profit of EUR 1.3 million. The

the leading North American manufacturer of

table above compares the most important key

industrial controls. In a single leap, Softing has

figures for 2014 and 2013.

managed to acquire a high-level presence in the US market. This is both a great opportunity and

After repeatedly expressing my concerns and

a great honor for us.

incomprehension in the face of major political mismanagement during nearly a year of poli-

Effective May 1, Softing acquired the entire

cies hostile to business in Germany, Softing has

Industrial Communication division of Trebing

now taken a significant step towards distanc-

& Himstedt GmbH. Although this company is a

ing itself from local risks. As of next year, a good

good deal smaller than OLDI, it perfectly com-

40 % of our revenue should be generated out-

plements Softing in the area of fieldbus diag-

side of Europe. This is more important than ever

3

since miserable socialist client politics has now

Even though these steps have now been com-

been joined by an acute military threat.

pleted and fully financed, they have taken their toll. This can be seen in the results of the first

Following the rocket launch that killed nearly

two quarters. The auditing and legal fees for

300 airline passengers, an act for which Rus-

the three acquisitions in 2014, including indi-

sia indisputably bears responsibility, around

rect costs and the cost of establishing a new

20,000 heavily armed Russian soldiers have

sales organization in the USA, are leaving deep

once again amassed at the Ukraine border.

marks in the earnings of the Industrial Automa-

Neither the West nor NATO is there to face

tion segment. However, we are laying the foun-

Putin, just a country that has been bled dry

dations for further growth and earnings here.

and done nothing more than declare its affin-

It would be irresponsible to refrain from doing

ity with E urope through long, hard protests.

this just to avoid short-term expenses over the

Anyone who cannot see how acutely our free-

course of half a year. We expect these costs to

dom is threatened by this is beyond help. Rus-

gradually disappear in the third and fourth quar-

sia’s n aked military force must be kept in check.

ters and our earnings to rise significantly to

The entire West must immediately drain the

their usual level.

Russian aggressors of their fuel through swift and, above all, tough economic sanctions. Even

Softing’s strategic goals have been clearly

if sanctions come at the expense of growth

defined: “We want to grow to achieve revenue

and earnings in the short term, the preserva-

of over EUR 100 million annually while balan

tion of our freedom should never be up for sale.

cing out the risks in terms of regions and busi-

If we lost our freedom, all earnings would ulti-

ness segments in a way that ensures the

mately go into the pockets of Putin and his cor-

greatest possible continuity in revenue and

rupt entourage. Now more than ever, it is impor-

profitability.” While this statement comprises

tant not to blur the lines between aggressor

only a few words, it is enough to require the full

and friend, even when our friend – the USA –

efforts of management for a sustained period of

makes silly mistakes by spying on its allies. We

time. Based on its very strong positioning in its

are threatened by Putin’s imperialist aggres-

target markets and notifications of orders from

sion, not by the NSA, even though the NSA

customers, Softing expects to generate reve-

has undoubtedly gone off the rails. Europe’s

nue growth to around EUR 65 million and EBIT

response must be to strengthen its network

in a range of EUR 5 million to just under EUR 7

in the Atlantic region and free itself of depen-

million in 2014.

dence on Russian gas as quickly as possible. We have never been in a better position to reach The shift to a truly internationally oriented

our goals. These are all good reasons to accom-

company will fundamentally and permanently

pany us on our journey and profit from the fruits

change the character of Softing. To be inter

of our development.

nationally oriented means more than just supplying international markets from Europe, it

Sincerely,

means having our own expertise, top-class management and local market access outside of Europe. So far, we are the only company in our field to have managed this. This is the only way we can achieve growth which will enable us to permanently surpass the EUR 100 million mark in revenue.

Dr. Wolfgang Trier (Chief Executive Officer)


Stock Price – Directors’ Holdings – Financial Calendar Closing price,

EUR

Xetra 18.75 17.50 16.25 15.00 13.75 12.50 11.25 10.00 07/01/13 10/02/13 12/30/13 03/31/14 06/30/14

Directors’ holdings as of June 30, 2014 Shares

Boards

June 30, 2014 Number

Options

March 31, 2014 Number

June 30, 2014 Number

March 31, 2014 Number

Supervisory Board

Dr. Horst Schiessl (chairman), Attorney at Law, Munich Dr. Klaus Fuchs (member of the Supervisory Board), graduate computer scientist / graduate engineer, Helfand Andreas Kratzer, CPA, Switzerland (member of the Supervisory Board)

–

–

–

–

273,886

273,886

–

–

9,976

9,976

–

–

84,085

84,085

–

–

–

–

–

–

Executive Board

Dr.-Ing. Dr. rer. oec. Wolfgang Trier, Munich Maximilian zu Hohenlohe, Pfaffenhofen

Financial calendar November 14, 2014

Quarterly Report 3/2014

November 28, 2014

Equity Forum in Frankfurt/Main

March 31, 2015

2014 Annual Report

May 15, 2015


August 14, 2015


November 13, 2015


5

Group Management Report for the 2/2014 Quarterly Financial Report Economic Environment Experts continue to expect growth of around 1.7 % for the German economy in 2014, with signs indicating an increasingly predatory competition in Europe. Higher growth rates are expected in North America. Industry and the automotive sector are set to record higher growth. Softing therefore anticipates a further year-on-year increase in incoming orders and revenue both in Automotive Electronics and Industrial Automation for the full 2014 financial year.

First-half earnings in the Industrial A utomation segment were impacted by the acquisitions of Psiber Data GmbH headquartered in Krailling near Munich as of January 1, 2014 and of O nline Development Inc. (OLDI) in Knoxville, Tennessee, United States, in May, as well as by the establishment of a brand new sales office in the United States, which generated substantial non-recurring expenses. These expenses will gradually disappear in the last two quarters of the year. Earnings are also expected to increase considerably based on growing revenue generated by the new sales office in the United States

Results of Operations Revenue in the Automotive Electronics segment in the first six months of 2014 rose by 23 % to EUR 15.6 million (previous year: EUR 12.7 million). The Industrial Automation segment recorded a revenue increase of 40 % to EUR 18.0 million (previous year: EUR 12.8 million). The increase in revenue in Automotive Electronics is fully attributable to organic growth, whereas Industrial Automation grew both organically and by making acquisitions. At EUR 33.6 million, the revenue of the Softing Group in the first half of 2014 thus was up EUR 8 million year on year (previous year: EUR 25.5 million). EBIT in the reporting period came in at EUR 2.0 million (previous year: EUR 3.1 million).

and release orders for products with a particularly high margin. As of June 30, 2014, orders on hand in the Group totaled EUR 9.2 million (March 31, 2014: EUR 9.7 million). The acquired companies contribute little to orders on hand because they nearly always deliver their products shortly after an order is placed.

Net Assets and Financial Position The equity ratio as of June 30, 2014 was 42 % (December 31, 2013: 65 %). Around half of the investments of EUR 22.9 million in the first six months of the year were financed from the Softing Group’s own funds. Further financing was provided by the Group’s first loans granted at exceedingly favorable terms. As a consequence of the high investments in new tech nologies as described and the acquisition of Psiber Data GmbH and Online Development Inc., cash and cash equivalents decreased by just under EUR 9 million to EUR 3.3 million from EUR 12.2 million as of December 31, 2013.


Research and Product Development

Outlook

In the first six months of 2014, Softing capital-

Based on its very strong positioning in its tar-

ized a total of EUR 2.0 million (previous year:

get markets and notifications of orders from

EUR 2.0 million) for the development of new

customers, Softing expects to generate reve-

products and the enhancement of existing

nue growth to around EUR 65 million and EBIT

ones. Other significant amounts were expensed.

in a range of EUR 5 million to just under EUR 7 million in 2014. Comparing the two operating

Employees As of June 30, 2014, the Group had 438 employees (previous year: 332). During the reporting period, no stock options were issued to employees. Opportunities for the Company’s Future Development As of the reporting date of June 30, 2014, the Company’s risk structure had not deviated significantly from the description in the consolidated financial statements for the year ended December 31, 2013. Material changes are also not expected for the remaining six months of 2014. For more information, we refer to our Group Management Report in the 2013 Annual Report, page 4 et seq.

segments, the EBIT margin in the Automotive Electronics segment is expected to be higher on account of high-margin orders and a lack of extraordinary expenses.

Events after the Reporting Period Softing AG successfully placed 451,000 new shares with institutional investors in July in an accelerated bookbuilding procedure. After the completion of the capital increase, the Com pany’s share capital amounts to EUR 6,959,438. All shares were placed without a discount at the current market price of EUR 16.80. Since this dispensed with the need to hold treasury shares as acquisition currency for the time being, Softing sold a total of 25,298 treasury shares in July at an average price of EUR 18.02 per share. On account of the procedure used (in accordance with Article 5 of Commission Regulation (EC) No. 2273/2003) and the low volume of shares, Softing AG was not required by law to issue separate announcements about this.

Softing AG, Haar Responsibility Statement To the best of our knowledge, and in accordance

portunities and risks associated with the ex-

with the applicable reporting principles for in-

pected development of the Company.

terim financial reporting, the interim consolidated financial statements give a true and fair view

Haar, Germany, August 12, 2014

of the assets, liabilities, financial position and profit or loss of the Company, and the interim

Softing AG

management report of the Group includes a fair review of the development and performance of

The Executive Board

the business and the position of the Company, together with a description of the material op-

Dr. Wolfgang Trier

7

Consolidated statement of financial position

as of June 30, 2014 and December 31, 2013 Assets

EUR thousand

Cash and cash equivalents Trade receivables Inventories Current income tax assets Current financial assets Other current assets Current assets, total

Property, plant and equipment

06/30/2014

12/31/2013

3,305

12,116

11,449

10,029

7,868

4,660

118

103

0

833

1,111

893

23,851

28,634

1,403

1,366

Intangible assets

10,291

7,289

Goodwill

28,533

2,439

Deferred tax assets

654

510

Non-current assets, total

40,881

11,604

Total assets

64,732

40,238

06/30/2014

12/31/2013

3,903

2,357

Equity and liabilities Trade payables

EUR thousand

Payables from customer-specific construction contracts

314

176

Provisions and accrued liabilities

455

210

1,955

1,598

756

586

Deferred revenue Income tax liabilities Short-term borrowings and current portion of long-term borrowings

1,912

195

Other current liabilities

5,641

5,248

14,936

10,370

2,373

2,182

Pensions and similar obligations

1,507

1,504

Long-term borrowings without current portion

9,794

0

Current liabilities, total

Deferred taxes

Other non-current liabilities

8,906

51

22,580

3,737

Subscribed capital

6,508

6,443

Capital reserve

5,208

4,396

Treasury shares

-287

-287

Net retained profits (incl. retained earnings)

14,709

15,606

Equity (Group share)

26,138

26,158

1,078

-27

Equity, total

27,216

26,131

Total equity and liabilities

64,732

40,238

Non-current liabilities, total

Minority interests


Consolidated Statement of Comprehensive Income

for the period from January 1 to June 30, 2014 and 2013

EUR thousand Revenue Other own work capitalized Other operating income Operating income

Quarter II/2014 04/01/2014 – 06/30/2014

Quarter II/2013 04/01/2013 – 06/30/2013

6-month report 01/01/2014 – 06/30/2014

6-month report 01/01/2013 – 06/30/2013

17,523

13,344

33,590

25,499

1,051

1,139

2,030

2,041

166

140

279

226

18,740

14,623

35,899

27,766

Cost of materials / cost of purchased services

-6,179

-3,717

-11,948

-6,729

Staff costs

-8,076

-6,459

-15,173

-12,846

-982

-843

-2,346

-1,686

-78

0

-157

0

Depreciation, amortization and impairment losses thereof impairment losses due to purchase price allocation

Other operating expenses Operating expenses Profit/loss from operations (EBIT) Interest income

-2,482

-1,896

-4,410

-3,399

-17,719

-12,914

-33,877

-24,660

1,021

1,709

2,023

3,106

12

72

46

101

Interest expense

-177

-74

-223

-115

Earnings before income taxes

856

1,707

1,846

3,092

Income taxes

-269

-637

-524

-927

587

1,070

1,322

2,165

Difference from currency translation

2

0

15

17

Measurement of securities

3

-3

0

-24

Net profit for the year

Other comprehensive income

Subtotal of items of other comprehensive income that will be reclassified to profit or loss for the period

5

-3

15

-7

Profits from the sale of treasury shares

0

832

0

832

Subtotal of items of other comprehensive income that will not be reclassified to profit or loss for the period

0

832

0

832

Total other comprehensive income for the period

5

829

15

825

592

1,899

1,337

2,990

586

1,061

1,229

2,159

Total comprehensive income for the period

Net profit for the year attributable to: Owners of the parent Minority interests Net profit for the year

1

9

93

6

587

1,070

1,322

2,165

591

1,890

1,244

2,984

Total comprehensive income for the period attributable to: Owners of the parent Minority interests

1

9

93

6

Total comprehensive income for the period

592

1,899

1,337

2,990

Earnings per share (basic)

0.09

0.30

0.21

0.48

Earnings per share (diluted)

0.09

0.30

0.21

0.48

Average number of shares outstanding (basic)

6,345,547

6,304,541

6,336,902

6,219,725

Average number of shares outstanding (diluted)

6,345,547

6,304,541

6,336,902

6,219,725

9

Consolidated statement of cash flows

for the period from January 1 to June 30, 2014 and 2013

Second quarter 01/01/2014 – 06/30/2014

Second quarter 01/01/2013 – 06/30/2013

Profit (before tax)

1,846

2,165

Depreciation, amortization and impairment losses on fixed assets

2,346

1,686

56

17

4,248

3,868

-46

-101

EUR thousand Cash flows from operating activities

Other non-cash transactions Cash flows for the period Interest income Interest expense

223

115

Change in other provisions and accrued liabilities

245

204

2,087

955

Change in other assets

Change in trade receivables

-740

247

Change in trade payables

-691

-901

Change in other liabilities

-185

-367

46

101

Interest received Income taxes paid Cash flows from operating activities

-538

-927

4,649

3,194

Investments in fixed assets

-1,038

-391

Cash paid for investments in internally generated intangible assets

-2,030

-2,041

833

395

-21,266

0

Repayment for investments in financial assets Cash paid for the acquisition of subsidiaries less acquired cash and cash equivalents Cash flows from investing activities Cash paid for dividends Cash received from bank borrowings Cash received from the sale of treasury shares Interest paid

601

0

-22,900

-2,037

-1,337

-1,709

11,000

0

0

1,317

-223

-115

Cash flows from financing activities

9,440

-507

Net change in cash and cash equivalents

-8,811

650

0

0

Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

12,116

11,516

3,305

12,166


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the period from January 1 to June 30, 2014 and 2013 Subscribed capital

Capital reserve

Retained earnings

Available-forsale financial assets

Other EUR thousand

As of January 1, 2014

6,443

4,396

Dividend payment

16,497

Actuarial gains and losses

1

-759

Treasury shares Currency translation

-134

-2,215

Addition from capital increase

65

74

15,605

-287

-2,215

-1

Currency translation

17

26,157

-26

Net profit for 2014

1,229 6,508

Subscribed capital

5,208

15,585

877

877

73

73

73

17

17

Capital reserve

Other

6,443

4,396

Sale of treasury shares Dividend payment

-759

-117

14,709

Retained earnings

EUR thousand

As of January 1, 2013

1,229 -

13,200

Available-forsale financial assets

17

-950

-287

Treasury shares Currency translation

-115

1,229

93

1,322

26,138

1,078

27,216

Attributable to shareholders of Softing AG

Total

-772

22,193

485

1,317

1,317

-1,709

-1,709

-1,709

-1,709

-24

-24

-24

17

17

17

Minority interests 2,165 4,396

Total equity

832

-24

6,443

Noncontrolling interests

12,126

Currency translation

Net profit for 2013

1,011

832

Measurement of financial instruments

-9

Actuarial gains and losses

26,131 -2,215

1,011

As of June 30, 2014

Total equity

-2,215

Minority interests

As of June 30, 2013

Noncontrolling interests

Total

812

Measurement of financial instruments

Attributable to shareholders of Softing AG

14,488

2,165 -33

-950

-98

13,407

-3

22,190

17 -6

-6

-9

21,785

2,165 -287

23,959

11

Consolidated Segment Reporting

for the period from January 1 to June 30, 2014 and 2013 Quarterly report II/2014 04/01/2014 – 06/30/2014

Quarterly report II/2013 04/01/2013 – 06/30/2013

Six-month report 2014 01/01/2014 – 06/30/2014

Six-month report 2013 01/01/2013 – 06/30/2013

Revenue

7,988

7,079

15,625

12,656

Segment result (EBIT)

1,078

957

1,834

1,729

291

300

EUR thousand Automotive Electronics

Depreciation /amortization Segment assets Segment liabilities Capital expenditure (not including long-term investments)

729

619

12,256

12,621

6,965

5,814

489

511

729

999

9,535

6,264

17,965

12,841

Industrial Automation Revenue Segment result (EBIT)

-56

753

189

1,377

Depreciation /amortization

629

487

1,497

956

Segment assets

49,135

12,117

Segment liabilities

14,876

4,372

Capital expenditure (not including long-term investments)

24,443

742

30,752

1,308

Revenue

0

0

0

0

Segment result (EBIT)

0

0

0

0

62

55

Not distributed

Depreciation /amortization Segment assets Segment liabilities

120

111

3,341

12,930

15,675

3,531

-37

58

-3

125

17,523

13,343

33,590

25,497

1,022

1,710

2,023

3,106

982

842

2,346

1,686

Segment assets

64,732

37,668

Segment liabilities

37,516

13,717

31,478

2,432


Total Revenue Segment result (EBIT) Depreciation /amortization


24,895

1,311


Selected Explanatory Notes to the Interim Report of Softing AG as of June 30, 2014 1. General Accounting Policies This entity has been controlled by the Softing The consolidated financial statements of

Group in accordance with IFRS 10 since May 23,

Softing AG as of December 31, 2013 were pre-

2014 and is therefore consolidated in the con-

pared in accordance with the International

solidated financial statements of Softing AG.

Financial Reporting Standards (IFRSs) based on the guidance of the International Accounting

There were no other changes to the basis of

Standards Board (IASB) applicable at the report-

consolidation since December 31, 2013.

ing date. The condensed interim consolidated financial statements as of June 30, 2014, which were prepared on the basis of International Accounting Standard (IAS) 34 “Interim Finan-

3. Disclosures Regarding the Acquisition of Psiber Data GmbH

cial Reporting”, do not contain all of the required information in accordance with the require-

Softing AG acquired all equity interests in P siber

ments for the presentation of the annual report

Data GmbH with effect from January 1, 2014.

and should be read in conjunction with the con-

Psiber is a provider of devices for the diagnosis

solidated financial statements of Softing AG

of Ethernet cables, which are used in office in-

as of December 31, 2013. In general, the same

stallations and data centers as well as in indus-

accounting policies were applied in the interim

trial automation.

financial statements as of June 30, 2014 as in the consolidated financial statements for the

By acquiring Psiber, Softing will close the strate-

2013 financial year.

gic gap in mobile devices for diagnosis of Ether net networks in the automation industry and also enter the market for the diagnosis of cop-

2. Change in the Basis of Consolidation

per and optical fiber networks for data centers and office installations.

Effective January 1, 2014, Softing AG acquired all interests in Psiber Data GmbH (“Psiber”), head-

The purchase price for the equity interests has

quartered in Krailling near Munich, from the

a fixed and a variable component. It is expected

shareholders.

that the entire purchase price (fixed and variable components) will be between EUR 6.0 mil-

Psiber Data GmbH in turn holds a 55% equity

lion and EUR 9.05 million and be settled entirely

interest in Psiber Data Pte Ltd Singapore.

from existing cash funds.

Both entities have been controlled by the

At the acquisition date, Softing recognized non-

Softing Group in accordance with IFRS 10 since

current assets in the amount of EUR 2.3 million

January 01, 2014 and are therefore consoli-

and current assets totaling EUR 2.9 million. Cur-

dated in the consolidated financial statements

rent liabilities are EUR 2.4 million. The prelimi-

of Softing AG.

nary figure for the goodwill generated from this transaction is EUR 6.4 million; the goodwill re-

Furthermore, effective May 22, 2014, Softing AG acquired all interests in Online Development Incorporated („OLDI“) headquartered in Knoxville, Tennessee, from the shareholders.

corded is non-tax-deductible.

13

The minority interest in the equity of Psiber was

The purchase price for the equity interests has

provisionally carried in the amount of EUR 1.0

a fixed and a variable component. It is expected

million. As part of the purchase price allocation,

that the entire purchase price (fixed and vari-

the minority interests have a proportionate

able components) will be the equivalent of

share of the remeasured assets and liabilities.

between EUR 15.3 million and EUR 21.9 million and be settled both from existing cash funds

At the present time, the measurement of the

and borrowings.

assets and liabilities acquired by the Group has not been finalized. The final purchase price

At the acquisition date, Softing recognized non-

also depends on the earnings figures for the

current assets in the amount of EUR 0.1 mil-

next two years. For the purposes of the con-

lion and current assets totaling EUR 4.0 million.

solidation of Psiber in the current half-yearly

Current liabilities are EUR 1.9 million. The pre-

report, the information available at present

liminary figure for the goodwill generated from

has been included so as to carry the best pos-

this transaction is EUR 19.7 million; the goodwill

sible estimates for the purchase price alloca-

recorded is non-tax-deductible.

tion. The statement of comprehensive income for the first six months of 2014 includes rev-

At the present time, the measurement of the

enue of EUR 4,892 thousand as well as profits

assets and liabilities acquired by the Group has

of EUR 361 thousand from Psiber.

not been finalized. The final purchase price also depends on the earnings figures for the next three years. For the purposes of the con-

4. Disclosures Regarding the Acquisition of Online Development Incorporated

solidation of OLDI in the current half-yearly report, the information available at present has been included so as to carry the best pos-

Softing AG acquired all equity interests in O nline

sible estimates for the purchase price alloca-

Development Incorporated (OLDI) with effect

tion. The statement of comprehensive income

from May 22, 2014. For over 20 years, OLDI

for the first six months of 2014 includes rev-

has designed and manufactured factory auto

enue of EUR 1.838 thousand as well as profits

mation products to help industrial customers

of EUR 361 thousand from OLDI.

simplify control and communications tasks. The company is virtually an ideal fit with Softing’s product portfolio in its core business of Softing Industrial Automation. OLDI is a Rockwell Automation Global Encompass Partner, a member of the Control System Integrator Association (CSIA) and ODVA and participates in partner programs from IBM, Microsoft, and Oracle. With the acquisition of OLDI Softing will benefit from the growth in the U.S. industrial equipment market. The acquisition will enable Softing to establish a comparatively strong position in two of the world’s three largest automation markets, thus reducing its economic dependence on the European market.

Richard-Reitzner-Allee 6 85540 Haar/Germany Phone +49 89 4 56 56-0 Fax +49 89 4 56 56-399 [email protected] www.softing.com

© Softing AG 08/ 2014

Softing AG