TKH TECHNOLOGIES GUARANTEE EFFICIENCY TKH GROUP NV AND SAFETY TKH Group NV Spinnerstraat 15 P.O. Box 5 7480 AA Haaksbergen TKH has defined seven vertical growth markets in which an above T +31 53 573 29 00 F +31 53 573 21 80 average growth is expected because of important trends, which lead ANNUAL REPORT 2016 ANNUAL REPORT E [email protected] to a high priority for investment in TKH’s core technologies. Thanks to I www.tkhgroup.com our continuous links with our customers, we are well informed about the latest developments on the market. As a result, we are aware of changes in the market, the needs of our customers, and the demands imposed in providing the perfect solution. Nonetheless, we still go one step further. Based on our technologies and innovative total solutions, we not only guarantee that our customers are successful, but also that they generate a return on their investments. TKH TECHNOLOGIES GUARANTEE EFFICIENCY TKH GROUP NV AND SAFETY TKH Group NV Spinnerstraat 15 P.O. Box 5 7480 AA Haaksbergen TKH has defined seven vertical growth markets in which an above T +31 53 573 29 00 F +31 53 573 21 80 average growth is expected because of important trends, which lead ANNUAL REPORT 2016 ANNUAL REPORT E [email protected] to a high priority for investment in TKH’s core technologies. Thanks to I www.tkhgroup.com our continuous links with our customers, we are well informed about the latest developments on the market. As a result, we are aware of changes in the market, the needs of our customers, and the demands imposed in providing the perfect solution. Nonetheless, we still go one step further. Based on our technologies and innovative total solutions, we not only guarantee that our customers are successful, but also that they generate a return on their investments. TKH GROUP ANNUAL REPORT 2016 CONTENTS 3 Foreword 75 Corporate Governance 4 Key figures* 75 Corporate Governance at TKH* 5 Highlights 2016* 80 Risk management 87 Management statement 6 About TKH 88 TKH shares 6 Profile 91 Stichting Continuïteit TKH (‘Continuity Foundation’) 6 Mission 92 Stichting Administratiekantoor TKH Group 7 TKH organization (‘Trust Foundation’) 8 Our core technologies 10 Our solutions 95 Section: ‘TKH technologies guarantee 12 Our seven vertical growth markets efficiency and safety’ 16 Value creation 130 Summarized financial statements 16 Value creation model 130 Consolidated profit and loss account 18 Our stakeholders 131 Consolidated statement of comprehensive income 20 Trends, opportunities & risks 132 Consolidated balance sheet 22 Strategy & objectives* 133 Consolidated statement of changes in group equity 24 Building blocks vertical growth markets 134 Consolidated cash flow statement 135 Notes to the summarized financial statements 25 Report Executive Board* 25 Members Executive Board 137 Other information 26 General developments 137 Proposal for profit appropriation 28 Financial developments 137 Independent auditor’s report 30 Developments per Solutions segment 138 Subsidiaries 33 Dividend policy and dividend proposal 141 Reporting system CSR 34 Acquisitions, investments and divestments 144 Ten years overview 35 Personnel and organization 146 Glossary and alternative performance measures 39 Corporate Social Responsibility 65 Outlook 66 Report Supervisory Board* 66 Members Supervisory Board 67 Report from the Supervisory Board 73 Remuneration report The paragraphs marked with an * belong to the Report of the Executive Board as defined in Title 9, Dutch Civil Code 2. 2 | TKH GROUP ANNUAL REPORT 2016 FOREWORD The strategic focus within TKH in combination with our R&D efforts In the section of this annual report we explain the relevance of our has resulted in a further strengthening of the foundations of TKH in technology and our solutions for improving the efficiency, safety and 2016. This development has brought the targets set within our security of the processes of our customers. The focus on our four core vertical growth markets even closer, although this is not directly technologies, our distinguishing capacity and the opportunities available reflected in the turnover achieved in 2016. Turnover developments to us within the vertical growth markets will all be discussed in detail. and results in the fourth quarter were particularly good, with new quarterly records being set in turnover, results and ROS. We underline once again the importance of corporate social responsibility (CSR). This aspect of our business will also be discussed in detail in the We are positive about the excellent cooperation that we have enjoyed CSR chapter of this annual report. We believe that our focus on CSR with our customers. This has made it possible to achieve big steps in our will serve as another distinguishing feature of our organization, and as market position. Technological developments at TKH strongly contributes such will be a key contributing factor in our business continuity and to make our customers more efficient and safer and responds to priorities positioning. Finally, also in the field of technology, CSR offers interesting that are important for our customers. challenges in the form of innovation, and we are pleased to see that our stakeholders are attaching ever greater value to the solid embedding of Distinctiveness with our innovations is the driver for TKH to grow and to CSR in the business culture. secure continuity. The value creation of TKH gives a good perspective and it is good to see that shareholders increasingly appreciate our strategy. We are grateful to our employees, customers, business partners, the We will continue on the same path and with the planned increase in Supervisory Board, shareholders and holders of depositary receipts of R&D expenditures in the coming years, to further expand our leading shares for the trust they have placed in TKH, and the support they offer technology proposition. us in further developing the company and achieving our ambitions. On behalf of the Executive Board, Alexander van der Lof, chairman TKH GROUP ANNUAL REPORT 2016 | 3 CAPITAL EMPLOYED AND ROCE in million in % KEY FIGURES 800 24 700 21 2016 2015 600 18 Operations (In € million) 500 15 Turnover 1,341 1,375 400 12 EBITA 147 152 300 9 Net result 87 88 Net profit before amortization and one-off income and expenses attributable to shareholders 1 94 100 200 6 Cash flow from operating activities 103 182 100 3 Net investments 2 46 38 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Depreciation of tangible non-current assets 23 23 Capital employed (in € mln) ROCE (in %) Balance sheet (In € million) Shareholders’ equity 3 583 529 NET PROFIT* in million Liabilities 664 721 Non-current assets 656 630 120 Current assets 590 620 100 Ratios (In %) 80 Shareholders’ equity/total assets 46.7 42.3 Shareholders’ equity/non-current assets 88.8 84.0 60 EBITA as % of the total turnover (ROS) 10.9 11.0 EBITA in % of the average capital invested (ROCE) 20.1 22.1 40 Net debt/EBITDA ratio 1.0 0.9 20 Net result as % of the total turnover 7.2 7.4 Return as % of the shareholders’ equity 3 16.5 19.3 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 * Before amortization and one-off income and expenses attributable to shareholders. Employees (In FTE) Number at year-end 5,509 5,387 MARKET CAPITALIZATION In euro’s (unless otherwise stated) in million Per ordinary share of € 0,25 4 1,800 Shareholders’ equity 13.82 12.70 Net result 5 2.04 2.07 1,600 Net profit before amortization and one-off income and expenses attributable to shareholders 1 5 2.25 2.40 1,400 Cash flow from operating activities 4 2.45 4.35 1,200 Dividend 1.10 1.10 1,000 Highest share price during year under review 38.14 40.50 800 Lowest share price during year under review 28.47 25.35 600 Share price at year-end 37.59 37.44 400 Ordinary shares outstanding at year-end ( x 1,000 ) 42,161 41,724 200 1 Amortization of intangible non-current assets related to acquisitions (after tax). 4 Based on outstanding ordinary shares held by third parties at 31 December. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2 In tangible non-current assets. 5 Based on weighted average number of outstanding shares at third parties. 3 Including non-controlling interests. 4 | TKH GROUP ANNUAL REPORT 2016 HIGHLIGHTS 2016 Turnover EBITA EBITA Q4 Decline in turnover of 2.5% to € 1,341.0 million, Decline in EBITA of 3.3% due to lower production Increase in EBITA in Q4 of 15.9%, mainly driven by rise in organic turnover decline of 0.8%. volumes at Industrial Solutions in the first nine months. EBITA Industrial Solutions due to increase in production volume. + 1,341million euros 146.5 million euros 15.9% Industrial Solutions R&D spending Net profit Visible recovery in order intake in tire building segment Increase investments and R&D spending to strengthen Decline in net profit before amortization and one-off (Industrial Solutions) in Q4. technology base and further expand TKH’s leading income and expenses attributable to shareholders of position. 5.6% to € 94.4 million; slightly above the previously communicated bandwidth (€ 88 - € 93 million). 89.0 million euros 50.3 million euros 94.4 million euros ROS / ROCE Innovations Dividend Robust ROS of 10.9% and ROCE of 20.1%. The share of innovations in turnover was 19.0%, well Dividend proposal: € 1.10 per (depository receipt for an) above the target of 15%. ordinary share, equal to the dividend for 2015. ROS ROCE 10.9% 20.1% 19.0% 1.10 euro TKH GROUP ANNUAL REPORT 2016 | 5 6 About TKH 6 Profile PROFILE MISSION 6 Mission 7 The TKH organization 8 Our core technologies 10 Our solutions 12 Our seven vertical growth markets Technology firm TKH Group NV (TKH) is an internationally operating TKH aims to be an innovative leading technology (niche)player that, group of companies that specializes in developing and delivering by means of combinations of its four core technologies, offers total innovative Telecom, Building and Industrial Solutions based on four solutions which lead to greater efficiency, more comfort and improved core technologies.