NEWAYS ELECTRONICS : H1 turnover and profit in line with expectations

PRESS CONFERENCE / ANALYST MEETING: TODAY, WEDNESDAY 27 AUGUST 2014
TIME: 10.30, LOCATION: Citigate First Financial - Assumburg 152a - AMSTERDAM

PRESS RELEASE

NEWAYS ELECTRONICS INTERNATIONAL N.V.

FIRST HALF RESULTS 2014

Number of pages: 9

Neways H1 turnover and profit in line with expectations
Continued high levels of volatility in EMS market

SON, 27 AUGUST 2014 - NEWAYS ELECTRONICS INTERNATIONAL N.V. (Neways) (Euronext: NEWAY) recorded net turnover of EUR 133.6 million in the first half of 2014, up 1.7% from the same period of 2013. Net profit came in at EUR 3.0 million in the first half of 2014, a significant improvement on the EUR 0.9 million reported for the same period of 2013.

Demand in the automotive industry remains strong, but demand in the semiconductor sector continues to be volatile. In the course of the second quarter, Neways saw a marked change in the development of turnover. The short-cyclical nature of the market translated into changes to customers' planning. This is also reflected in Neways' order book, which stood at EUR 60.8 million at the end of June 2014, compared with EUR 68.5 million at year-end 2013.  

In April of this year, Neways announced the intended acquisition of BuS Group in Germany. The acquisition is a perfect fit with Neways' strategy and the German company's complementary customer portfolio ensures improved distribution across the market segments. BuS Group's customers are primarily active in the automotive industry, but also in industrial electronics, medical technology, railway and aviation. The results of BuS Group will be consolidated as from July 2014.  

Turnover and order book
Gross turnover increased by 6% to EUR 151.5 million in the first half of 2014, from EUR 143.1 million in the first half of 2013. Internal turnover came in EUR 6.2 million higher than in the same period of last year, primarily due to the fact that the various Neways operating companies still had a large number of contracts for Kassel in the early part of the year.

Net turnover was up 2% at EUR 133.6 million. Turnover increased by 7% in the first quarter of 2014 and declined by 2% in the second quarter of the year.

The persistent high volatility in the Electronics Manufacturing Services (EMS) market is making demand volatile, as various customers adjust their plans both upwards and downwards. In addition to the decline in demand in the semiconductor and medical sectors, the order book was affected likewise by an increase in deliveries according to the SMOI principle (Supplier Managed Owned Inventory). At the end of June 2014, the order book stood at EUR 60.8 million. 

Gross margin
Gross margin as a percentage of turnover increased to 41.2% in the first half of 2014, compared with 39.7% in the first half of 2013. This improvement was largely due to the changed product mix. 

Operating costs 
We continue to devote a great deal of attention to the typical high volatility in the EMS market, with an eye to capacity utilisation. Despite steady improvement in the course of the past year, there is still room for further optimisation in this area. 

Personnel expenses increased by 3% in the first half of 2014 to EUR 39.0 million, from EUR 38.0 million in the same period of 2013. The average number of FTEs dropped by 2% to 1,876 compared to the same comparable period of last year. This was partly due to the closure of Neways Electronics Production in Kassel, Germany (NEK) as a consequence of a fire at the operating company.

Other costs (including offices, production costs and cost of sales) fell to EUR 10.3 million in the first six months of 2014, compared with EUR 10.9 million in the first half of 2013. Depreciations were down by EUR 0.3 million at EUR 1.6 million in the first half of 2014, from EUR 1.9 million in the same period of 2013. 

Operating result and operating margin
The operating result from normal business operations (excluding exceptional income and expenses) came in at EUR 4.2 million, compared with EUR 1.3 million in the first half of 2013. The result in the first half of 2013 was pressured by a loss-making first quarter in which the imbalance in capacity utilisation within the Neways Group was at a relatively high level.
This capacity utilisation has since improved, partly due to the relocation of the production activities of Neways Electronics Echt, which Neways announced at the end of January 2013 and completed in August 2013, plus the closure of NEK. The operating margin in the period under review was 3.2%.    

Financing costs and tax burden
The financing costs came in lower in the first half of 2014 at EUR 0.1 million. The tax burden in the first half of 2014 consisted primarily of corporate tax due on the fiscal profit realised in the Netherlands at the prevailing tax rate of 25%. Due to the application of other tax rates at foreign participations, the total tax burden came in at 26% in the first half of 2014.

Net profit
Net profit from normal business operations (excluding exceptional income and expenses) came in at EUR 3.0 million, a significant improvement on the EUR 0.9 million recorded in the same period last year.

Shareholders' equity and solvency
Neways' balance sheet ratios remain as strong as ever. Shareholders' equity increased by 5% to EUR 52.6 million (year-end 2013: EUR 50.1 million) due to the addition of the profit realised in the first half of 2014.
As expected, Neways' balance sheet has become considerably shorter, due to the financial settlement of the closure of the operating company in Kassel. Solvency (shareholders equity / total equity) stood at 49.1% as per end-June 2014, compared with 41.5% as per year-end 2013 and 41.6% as per end-June 2013). Corrected for deferred taxes and goodwill, solvency came in at 47.1%, which is well above the minimum target of 35% set by Neways' banks.

Working capital and operating cash flow
The working capital (inventories plus receivables, minus trade payables and other short term liabilities) increased to EUR 33.6 million as per end-June 2014, from EUR 13.3 million as per year-end 2013. At end-June 2013, the working capital stood at EUR 37.0 million. The increase as per year-end 2013 was driven primarily by the financial settlement of the closure of the operating company in Kassel, as well as an increase in inventories and a drop in payables.

Neways maintains a sharp focus on inventory management. However, the turnover rate of the inventories fell in the first half to 66 days at end-June 2014, from 59 days at year-end 2013. This was largely due to an increase in the use of the SMOI principle by customers, which led to an increase in the inventory of finished products, and planning adjustments at short notice. Neways expects to see a clear improvement in the turnover rate in the second half of 2014.

Accounts receivable came in slightly higher due to an increase in turnover. The number of accounts receivable days stood at the healthy level of 39 days. The provision for doubtful debts stood at EUR 0.4 million as per end-June 2014 (31 December 2013: EUR 0.4 million).

Investments and net cash flow
The total investments in tangible and intangible fixed assets came in at EUR 2.8 million, compared with EUR 2.0 million in the first half of 2013. A significant portion of these investments were related to the thorough renovation of the building in Echt, including the construction of clean rooms for the Neways Micro Electronics operating company. The return on invested capital (operating result as a percentage of invested capital) increased to 7% in the first half of 2014, from 3% in the same period last year.

The net cash flow came in at minus EUR 18.5 million, compared with a positive EUR 2.1 million in the first half of 2013. This was largely due to the sharp increase in working capital utilisation and the financial settlement of the closure of the operating company in Kassel.  This led to a drop in the bank balance to EUR 3.2 million.

Personnel
The total number of employees (FTEs) was lower at end-June 2014 compared with year-end 2013. The number of employees in Western Europe fell to 1,206 as per end-June 2014, from 1,297 as per year-end 2013. In Eastern Europe and China, the number of employees remained virtually unchanged at 644 employees as per end-June 2014, compared with 643 as per year-end 2013. Approximately 35% of the total number of Neways employees is active in Eastern Europe and China.

Significant strategic and operational developments
In the period under review, Neways completed the adjustment and optimisation of its production activities for NEK customers, following the closure of the NEK operating company. The relocation of production activities led to a more optimal capacity utilisation at a number of Neways operating companies.

Neways again continued to expand its development, prototyping and testing activities in the first half of 2014. The number of developers / engineers working at Neways increased in the first half of 2014 and stood at some 10% of the total Group workforce as per end-June 2014.

In April 2014, Neways announced the intended acquisition of BuS Group in Germany. Neways expects to actually complete the acquisition at the end of September. BuS Group supplies electronic solutions for the EMS market, offers high-end expertise in the field of technology and development, and is highly service oriented. The company's head office is located in Riesa (Germany). BuS Group has a total workforce of 900 employees, with 50 of these developers.
Neways expects to realise considerable synergy benefits with this acquisition. The strategies of both companies are an excellent fit and they have complementary customer bases, market segments and activities.  A more balanced market sector distribution will also help Neways book more stable turnover and reduce fluctuations in results.
BuS Group adds new technological capacity and expertise, as well as the potential to share best practices across the Group in fields such as component and system development, process innovation and production and supply chain management. Neways also expects the combination to increase the Group's purchasing power and create potential purchasing synergies. The combination will also be able to benefit from Neways local presence and the existing (low-cost) production capacity in Asia, which will give BuS Group customers greater access to competitive and custom-made solutions.

Outlook
After a strong first quarter, the second quarter of 2014 showed a marked change in turnover, driven by the high volatility typical of the EMS market. The highly cyclical nature of the market
- translating into changes to customers' planning - in combination with an increase in deliveries according to the SMOI principle, is also clearly evident from the order book, which stood at EUR 60.8 million as per end-June 2014. At the end of 2013 the order book stood at EUR 68.5 million.

In view of the short horizon as a result of the highly dynamic EMS market, it is difficult to make reliable predictions for the full year. Neways expects customers to continue to adjust their planning upwards and downwards in the coming months.

Neways will continue to focus strongly on inventory reduction, cash flow management and increasing the flexibility of the organisation in the second half of 2014. The company will also be aiming for a further improvement in the turnover rate of its inventories.

In financial terms, Neways will remain in a healthy position for the full year 2014. The company's strong financial position will enable Neways to anticipate market developments and respond continuously to changing market sentiments.

In addition, Neways will be focusing on the completion of the acquisition of BuS Group and the subsequent controlled integration of the two organisations. The results of BuS Group will be consolidated as from July 2014. Earlier Neways announced BuS Groups' expectations to book turnover of around EUR 118 million for the full year 2014, with an EBIT margin of around 6%. Bus Group performed better than expected in the first half of the year. 

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PRESS CONFERENCE / ANALYST MEETING
The combined press conference / analyst meeting on the half year 2014 results will be held today at 10.30 at the offices of Citigate First Financial, Assumburg 152a in Amsterdam.

For further information please contact:

Neways Electronics International N.V. (Neways) is an international company active in the EMS (Electronic Manufacturing Services) market. Neways offers its clients custom-made solutions for the complete production lifecycle (from product development to after-sales service) of both electronic components and complete (box built) electronic control systems. Neways operates in a niche of the EMS market and focuses primarily on small to medium-sized specialist series, with quality, flexibility and time-to-market playing a crucial role. Sectors in which Neways´ products are used include the semi-conductor, medical, automotive, telecom and defence industries. Neways has operating companies in the Netherlands, Germany, Slovakia and China, with a total of around 1,909 employees in 2013. In 2013, Neways booked net turnover of EUR 265.0 million. Neways is listed on Euronext Amsterdam (symbol: NEWAY).

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Half-year report 2014
The official interim report for 2014, which is compulsory under the EU Transparency Directive, was published today and is available on the Neways corporate website (www.neways.nl). 

Financial calendar 2014

Open day shareholders    16 September 2014Publication interim trading upate4 November 2014Publication 2014 annual results2 March 2015

Addenda:
- Consolidated profit and loss account
- Consolidated balance sheet
- Consolidated cash flow statement
- Statement of changes in Group equity
- Additional data

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