Speech of Georg Gayer
Chairman of the Management Board
Financial Statements Press Conference of TAKKT AG on 21 March 2002 in Stuttgart
Only the spoken word applies
Ladies and gentlemen,
On behalf of TAKKT AG, I would like to welcome you to this year's financial statements press conference.
First of all, I would like to describe briefly how we presented ourselves on the international market in 2001. Afterwards, Dr. Zimmermann will explain our company figures in detail. At the end of our presentations, we will be available to answer your questions.
The financial year 2001 can be summed up shortly with the following statement: In 2001, we asserted ourselves well in a very difficult economic environment and thus strengthened our market position.
Holding our own in a difficult environment
Four points demonstrate this clearly:
Firstly: Our group turnover rose by 8.0 percent to EUR 824.1 million.
Secondly: The EBITDA margin remained stable at 10.2 percent, and is therefore within our long-term target corridor of 10 to 12 percent.
Thirdly: We duplicated our successful business model in new regions and thus laid the foundation for further growth.
Fourthly: We considerably strengthened our equity ratio in the year under review.
Turnover growth and stable EBITDA margin
In light of the weak economy in our main markets - the USA and Europe - the 8 percent increase in turnover was respectable. Compared to 1999 and 2000, however, it was below average.
Several of our established companies were particularly affected, and some of them suffered a decline in turnover. We were therefore unable to grow organically in the year under review. The fact that we still achieved a turnover of EUR 824.1 million, compared to EUR 762.8 million last year, can be attributed primarily to Hubert. This US company, which we acquired at the end of 2000 and which was consolidated for the first time for a full year in 2001, proved to be resistant to economic fluctuation thanks to its broad product portfolio oriented on the service sector. Without Hubert, adjusted for currency effects, turnover would have decreased by 3.7 percent.
Despite the increase in turnover, it is a drop of bitterness that we did not display organic growth. We were resolved to achieve more in 2001. Although we had already noticed business clouding at the start of 2001 - particularly for C&H Distributors in the USA - we were still surprised by the extent to which the economy deteriorated. We were not the only ones who were surprised: even the economic experts were distinctly wide off the mark with their forecasts.
Change in the estimated GDP 2001
You probably remember that the economic institutes repeatedly scaled down their forecast for gross domestic product in Germany, the euro countries and the USA.
Contrary to the soft landing that was originally hoped for, the US economy went into recession in 2001 after 10 years of growth. The events of September 11 aggravated the situation. Economic recovery was delayed. Because of this, the USA achieved real growth of only around 1.1 percent in 2001. In the year 2000, this figure was 4.1 percent.
The global economy could not escape the effects of the downward trend of the weak US economy. Europe, and Germany in particular, was affected more swiftly than originally expected. Normally, economic cycles move from the USA to Europe with a certain delay. This was different in 2001. For the first time, there was nearly parallel development. This is a decisive factor for the TAKKT group.
This exceptionally short delay made it difficult for us to compensate completely for the downturn in the USA, despite our numerous regional pillars of support. While we were able to counterbalance the slowing business in the USA with a positive performance in Europe in the first half of the year, this was no longer possible in the second half of the year.
In Europe, GDP growth declined from 3.4 percent in the year 2000 to around 1.5 percent; in Germany, it declined from 3.0 percent to 0.6 percent.
Effects of the economy
This negative economic development particularly affected our value and growth drivers. These include the average order value, the order frequency of customers and the acquisition of new customers.
Average order values decline in a difficult economic situation. Order frequency declines as well.
Our focus on products with stable prices paid off in this difficult overall economic situation. The lower number of large orders together with steady prices ensured a constant gross profit margin. We were even able to raise the gross margin by nearly 1 percentage point.
We were also pleased that we were able to at least partially compensate for the lower order values and the purchasing restraint per customer by acquiring new customers, so that we could lay the foundation for further success. Thanks to improved advertising and an optimised range of products, we increased our market share and acquired 250,000 new customers. Our customer base now consists of 2.4 million customers.
Turnover growth and stable EBITDA margin
Let us go back to turnover: Declining demand - measured by the decreasing order values and quantities of items sold - together with the initial consolidation of Hubert, as mentioned before, caused a below-average increase in turnover.
The EBITDA reacted differently, on the other hand. Earnings before interest, taxes, depreciation and amortisation declined slightly from EUR 87.6 to 84.0 million. The decrease in the EBITDA was affected by various factors, including the planned start-up losses for the newly established Topdeq USA, KAISER + KRAFT Portugal and KWESTO Poland, and the cost of mailing the first Hubert catalogue in Canada and KAISER + KRAFT catalogue in Ireland. At the same time, the decline in the turnover of some of the established companies had a negative effect. Cost-cutting measures and the increase of the gross profit margin could not completely compensate for these effects.
Nonetheless, at 10.2 percent, the EBITDA margin remained in our long-term target corridor of 10 to 12 percent, as expected.
The decrease in the EBITDA was therefore caused by the decline in organic growth and by our consistent growth strategy, to which we remained true in the year 2001.
For years, we have consistently and logically applied our duplicable systems approach with its increasingly diversified product range to new regions, new markets and new customer segments. This enables us to be largely independent of individual product and customer groups and regions. At the same time, we are better able to absorb world-wide economic fluctuations, as the year under review has shown.
Let us look first at the KAISER + KRAFT EUROPA division. We improved our market penetration in Northern, Southern and Eastern Europe by establishing new companies and further improving our services and range of products.
Highlights 2001 - KAISER + KRAFT EUROPA
Up to now, we served the Eastern European market through KWESTO Czech Republic. In order to address this fast-growing market adequately, we established KWESTO Poland, with offices in Wroclaw (Breslau), in the year under review. The products of both KWESTO companies are aimed primarily at the market requirements of small and mid-size companies in Eastern Europe.
KAISER + KRAFT Spain was formerly responsible for serving the Portuguese market. To improve our services, we resolved to open a company in Portugal with head offices in Lisbon. This step enabled us to strengthen our market position in Southern Europe considerably.
KAISER + KRAFT mailed its own catalogue in Ireland for the first time. The response met our expectations.
In mid-2001, the extension of our mail-order centre in Kamp-Lintfort was set into operation after one year of construction. Storage space has more than doubled to 26,000 square metres. Over 5,000 items can now be stored on 26,000 - formerly 12,000 - euro palettes. This means that an even larger number of products is readily available now.
Highlights 2001 - Topdeq
Let us move on to Topdeq. In its first year, the new Topdeq company in the USA was able to perform well from the start, despite the economic slump. The European office design met with a great response from our American customers.
In 2001, work began on the extension of the Topdeq central warehouse in Pfungstadt. Storage capacity was already completely exhausted in 2000, and we were forced to rent additional space. We had to enlarge the central warehouse in order to maintain our high quality of service - particularly our 24-hours delivery service. We will invest around EUR 11 million in the warehouse, which will be rented. The expansion should be completed in autumn 2002.
In the coming years, Topdeq will continually expand both its range of design products and its already high level of service in order to distinguish itself from competitors, particularly in Germany. This high level of service includes our customer-friendly website, which we continued to improve in 2001. With its interactive "Find-Look-Buy-Mix" offer, the site makes it considerably easier for customers to make a purchase. Thanks to this function, customers can view additional, possible combinations and order suitable matching products for each available item.
Furthermore, by expanding our "Guaranteed Delivery Date" service and improving our response time, we will meet customer demands even better than before - and I would like to stress that we will do so with negligible additional expenditure.
Returning to Topdeq's Internet presence: In 2001, the Topdeq website received an award for the third time. At the New York Festivals, the most important international communications competitions, the site won the bronze medal in the "E-Commerce" category and the gold medal in the "Product Advertising" category. There were a total of 6,400 entries from 64 countries in the competitions.
Highlights 2001 - K + K America
Now to our third business division: K + K America. Hubert - the mail-order specialist offering equipment and supplies for food service retailers and restaurants, which we acquired in financial year 2000 - was successfully integrated in the group. As mentioned before, the company achieved positive results in the year under review and was thus able to distance itself from the downward trend of the US economy.
The other K + K America companies were affected to various degrees by the difficult economic environment. While Conney and Avenue were almost completely able to distance themselves from the negative trend, C&H was affected the most. It is not surprising, therefore, that the new office furniture catalogue in the USA did not entirely live up to our expectations, either.
We would like to strengthen the position of K + K America on the entire North American continent in a long-term, sustainable way. Our subsidiary Hubert mailed its catalogues to Canada for the first time. The reaction was very positive.
C&H Distributors will intensify its contact with Mexico. The company already mailed its first catalogues there in the year 2000. The growth rates are good. For us, Mexico is a market with a future.
After this overview of the business divisions, let us turn back to the entire group.
Strengthened equity ratio and stable dividend
I mentioned earlier that we were able to strengthen our equity ratio. It rose by 3.1 percentage points to 25.6 (22.5) percent. As you can see, thanks to the high cash flow, our group has a solid equity basis. Nothing will stand in the way of further growth.
In spite of the difficult financial year, we intend to pay a dividend of EUR 0.10 (0.10) per share for 2001, as we did in the year before. Here, too, we are displaying continuity.
TAKKT share - reflecting the weakness of the economy
The rough economic climate also effected our share price. As of the balance sheet date, our share was listed at EUR 5.85. The opening price of 2001 was EUR 9.50. Our US activities were certainly a key factor in the restraint of investors. The events of September 11 reinforced investors' avoidance of American shares and companies with an appreciable amount of business activity in the USA. Although the economic repercussions of the terrorist attacks affected the TAKKT group only to a limited degree, some investors were worried.
This uncertainty is gradually abating, and rightly so, as the company figures - which Dr. Zimmermann will soon present in more detail - clearly show. After all, the company remains profitable, has a strong cash flow and has maintained a stable EBITDA margin even under difficult economic conditions.
We are convinced that TAKKT will assert itself as a profitable growth share on the capital market. With a market capitalisation of nearly EUR 450 million and nearly 73 million shares, we remain an SDAX heavyweight.
Outlook 2002
In conclusion, I would like to say: What will the year 2002 look like for TAKKT?
Economic researchers expect an upswing in the economy in the second half of 2002. More and more indicators in the USA are pointing to economic recovery. We have sensed this ourselves for several weeks. I am certain that we will experience positive growth rates again in the second half of the year. Whether this will lead to considerable growth for the entire year 2002 depends now on the intensity of the economic recovery.
The outlook is somewhat different for Europe. We expect the economic situation to recover later here, particularly in Germany. As a result, the first two quarters will not be entirely satisfactory. However, we hope that our newly established companies will enable us to achieve positive growth overall for the year 2002. Our improved range of products and our expanded services will also contribute to this.
We are not ruling out establishing or acquiring new companies if it makes strategic sense to do so.
Thank you very much for your attention. Dr. Zimmermann will now explain in detail the success of our company.
Contact:
Georg Gayer
Tel.: (49) 711 / 5001-239
Dr. Felix A. Zimmermann
Tel.:(49) 711 / 5001-861