Speech of Dr Felix A. Zimmermann
Board Member for Finance and Controlling
Only the spoken word applies
Ladies and gentlemen,
For TAKKT AG there were material innovations in communication to the capital market last year. I would like to describe these first, before I deal with the financial figures in detail.
Since the first quarter of 2002, TAKKT AG has been reporting in line with IAS, the International Accounting Standards. We also retroactively converted the previous years in order for there to be compatibility on an individual year basis.
The trigger for the move to IAS was not only the regulations applying to the SMAX segment, but also our wish to meet international accounting standards. We are of the opinion that with the early shift of reporting to internationally accepted accounting principles, TAKKT AG will be more transparent and thus more attractive for investors, especially for foreign investors.
TAKKT group implements German Corporate Governance Code
As a listed German company we feel committed to the German Corporate Governance Code, which was resolved a good year ago. TAKKT observes the regulations of the Code, with two exceptions. We do not see the necessity of a separate Audit Committee on the part of the Supervisory Board, as our Supervisory Board with nine members can fulfil the relevant monitoring functions efficiently without forming an Audit Committee. A further variation relates to the remuneration of the Supervisory Board members. On this subject, a relevant change to the articles of association is to be made at the Annual General Meeting on 6 May 2003. At that point, we will deviate in only one matter from the Code, in the matter of the Audit Committee, but as stated with good reason.
The third fundamental innovation in recent months is the resegmentation of the German Stock Exchange. As Mr Gayer has just stated, our application to be included in the Prime Standard has been accepted. This underscores our clear stand regarding the requirements of the capital market. Furthermore, we remain a member of the SDAX, a fact which naturally positively influences our attraction for investors.
Finally, I would not like to leave unmentioned that we wish to meet the new requirements of the capital market through the revision and redesign of our TAKKT web site. This site is online from today and provides investors and those interested in TAKKT with up-to-data and more extensive information.
But now to the TAKKT AG figures.
Turnover decline at the TAKKT group
As you can see, turnover at the TAKKT group did not increase in 2002. In fact we sustained a 4.9% turnover decline to € 783.7 million. The main reasons for this, as Mr Gayer has just stated, were the lower average order volumes, the purchase frequency and the development of exchange rates. If exchange rates had not moved, the minus would have been 3.0%.
We were not able to decouple ourselves entirely from the general economic development, but have performed quite well. Over the course of the recent years, TAKKT AG has posted a respectable development. You can see this in the Compound Average Growth Rate, in short, CAGR. Since the spin off from GEHE AG and the IPO in 1998 we have grown every year by an average of 9,8%.
Turnover
1998 € 539.4 million
1999 € 627.5 million
2000 € 762.8 million
2001 € 824.1 million
2002 € 783.7 million
Turnover breakdown between North America and Europe remains in equilibrium
As in 2001, in 2002 we also generated our turnover almost equally in North America and Europe. As you can see, our North American business contributed 44.4% of revenues, Germany 23.4% and the rest of Europe 32.2%. Our objective is to develop a regionally balanced portfolio. We have moved closer to this goal and the expansion into Asian will further advance the regional diversification.
Europe remains region with highest turnover
If turnover is broken down by business area, we see virtually no shift in comparison to the previous year. At 46.9%, KAISER + KRAFT EUROPA remains the division with the strongest turnover, closely followed by K + K America. Topdeq contributed 10.1% to turnover.
Diversified product portfolio
Let us now look at the product breakdown of turnover at TAKKT AG. Within the product groups, Business was the turnover mainstay, generating close to 60%.
We generated the remaining turnover at approximately the same level with the other product groups: office equipment, work safety products, design-oriented office furniture and accessories and well as food service products for food retail, as well as the catering and hotel business.
In recent years, TAKKT AG has made great progress in the diversification of the product portfolio. The strategy again bore fruit in 2002 and in view of the difficult general economic situation produced the expected stabilising effect. In North America in particular, we benefited from the fact that with their product range for service companies our companies Hubert and Conney Safety Products were relatively immune to the generally weak economic situation.
Gross margin stable
At TAKKT AG the gross margin remained virtually stable at a high level in 2002. Indeed, it even widened somewhat – by half a percentage point to 40.0%. This is due to the stable prices of our product range which tends to be relatively insensitive to price. However, the fact that as a result of the general economic situation we received fewer large orders on which we would have had to offer discounts, also played a factor. Furthermore, as Mr Gayer has already stated, we were able to extend the higher-margin warehouse business at KAISER + KRAFT EUROPA after extending our warehouse in Kamp-Lintfort. Finally, the relative share of the higher-margin Hubert business increased as a result of the good performance of this company last year.
Despite weak general economy EBITDA margin in target corridor
Let us now come to the result of our operating activities. Mr Gayer has already indicated that profitability in the TAKKT group developed satisfactorily. Let us first look at EBITDA, earnings before interest, taxes, depreciation and amortisation. This figure shows the operating profitability of our company. The influence of the financing structure and deprecation is eliminated. Also not considered are special factors, such as the spin off from GEHE AG and goodwill depreciation as a result of our acquisitions.
In 2002, EBITDA declined by 1.1% to € 85.7 million. However, the margin increased to 10.9%.
EBITDA
1998 € 67.4 million 12.5% (margin)
1999 € 72.6 million 11.6%
2000 € 90.3 million 11.8%
2001 € 86.6 million 10.5%
2002 € 85.7 million 10.9%
Timely capacity adjustment
A positive point was that the start-up losses of our new companies were lower than in the previous year. Moreover, we had adjusted our capacities in a timely fashion to the weakening demand. We also reduced costs in generating advertising media and in catalogue dispatch. As a result of these measures we are able to perform well, even in the face of the worsening general economy.
For the EBITDA margin, we have established a long-term target corridor of between 10% and 12%. In view of the general conditions, we consider it a success that, at 10.9%, we were able to keep our EBITDA margin within this range. Thus we also achieved our goal of earnings stability in 2002.
EBITA – better margin despite turnover decline
If you now consider scheduled deprecation, for example on fixed assets, we obtain the EBITA ratio. At € 75.1 million EBITA reached almost the level of the previous year, with the margin being improved slightly to 9.6%. This is also an indication of the stable earnings power at TAKKT AG.
EBITA
1998 € 61.4 million 11.4% (margin)
1999 € 65.1 million 10.4%
2000 € 81.3 million 10.7%
2001 € 76.4 million 9.3%
2002 € 75.1 million 9.6%
EBIT – virtually unchanged at a high level
In 2002 scheduled goodwill depreciation was taken in at the same level of the previous financial year. We made no unscheduled write-downs on our participations. Earnings before interest and taxes, the EBIT, declined by € 0.7 million to € 57.0 million. This means that in spite of declining turnover, it remained relatively stable. Here too the margin improved slightly to 7.3%, again demonstrating the profitability of the group.
EBIT
1998 € 58.4 million 10.8% (margin)
1999 € 57.1 million 9.1%
2000 € 68.6 million 9.0%
2001 € 57.7 million 7.0%
2002 € 57.0 million 7.3%
In the profit before tax position, TAKKT AG benefited from lower interest rates in Europe and the USA and the reduction of indebtedness. In comparison to the previous year, we paid some € 4.2 million less interest, partly due to the exchange rate situation. As a result, profit before tax increased from € 35.5 million to € 39.0 million.
Profit before tax
1998 € 56.4 million 10.5% (margin)
1999 € 50.2 million 8.0%
2000 € 55.5 million 7.3%
2001 € 35.5 million 4.3%
2002 € 39.0 million 5.0%
Lower tax rate, higher group profits
Profit after tax developed positively, due to the fact that our tax rate is lower. Overall we posted € 24.5 million as group profits after taxes, a plus of 26.2%. The margin increased considerably, to 3.1%.
Profit after tax
1998 € 28.2 million 5.2% (margin)
1999 € 31.2 million 5.0%
2000 € 33.5 million 4.4%
2001 € 19.4 million 2.4%
2002 € 24.5 million 3.1%
In 2002 there was a slight decline in the number of employees. On the basis of full time equivalents we employed 1,914 staff at the end of 2002, 50 fewer than in the previous year. With the established companies, capacity was adjusted, taking advantage of attrition. With the new companies, such as KWESTO Slovakia and Topdeq USA, new jobs were created.
Our employees are a decisive factor to the success of the company and a value-driver of the group. For this reason we have continued to invest in them, despite capacity adjustments. Training of young persons and vocational training of employees was continued at a high level.
That brings me to the end of the overview at group level. I would now like to speak briefly about how the financial year developed in the individual areas.
Employees (FTE, average)
1998 1,330
1999 1,497
2000 1,674
2001 1,973
2002 1,932
KAISER + KRAFT EUROPA most profitable division
KAISER + KRAFT EUROPA generated turnover of € 367.2 million, 4.2% less than in the previous year. On the other hand, EBITDA rose by 3.0% to € 60.5 million. Thus KAISER + KRAFT EUROPA, with an EBITDA margin of 16.5%, remained the largest and most profitable division in the TAKKT group. Especially pleasing among the established companies were the subsidiaries in Spain, France and Austria. Due to the general economic situation, business in Germany was unfortunately weak.
On the other hand, our new companies in Portugal and Ireland have developed well. We are also satisfied with the KWESTO companies in the Czech Republic, Poland and Slovakia.
KAISER + KRAFT EUROPA
Turnover EBITDA
1998 € 313.2 million € 42.5 million
1999 € 326.6 million € 45.3 million
2000 € 366.4 million € 53.8 million
2001 € 383.3 million € 58.7 million
2002 € 367.2 million € 60.5 million
Topdeq successful in the USA, weaker in Germany
On top line level, Topdeq, our specialist for design-oriented office furniture and accessories, also declined. Turnover moved down by 4.4% to € 79.3 million, with EBITDA declining to € 0.2 million. The key factor impacting the decline in turnover was the poor general economic situation in Germany and Switzerland. The situation was much more pleasing with the most recent new companies in France and the USA. While Topdeq France generated significant growth against the previous year, Topdeq USA even exceeded the ambitious target figures. However, this was not able to compensate for the decline in Germany and Switzerland.
Topdeq
Turnover EBITDA
1998 € 63.0 million € 8.3 million
1999 € 73.0 million € 9.3 million
2000 € 87.1 million € 8.4 million
2001 € 83.0 million € 0.7 million
2002 € 79.3 million € 0.2 million
K + K America maintains level of turnover and earnings stable
In dollar terms, K + K America defied the weak economy. At USD 318.0 million, turnover remained virtually stable, with EBITDA increasing 3.8% to USD 30.5 million. Hubert, which continued to grow, made the primary contribution here. Avenue Industrial Supply in Canada also reported a positive development of business.
However, the defining currency is not the dollar, but the euro. As you know it has strongly appreciated in recent months. On a euro basis, K + K America posted a turnover decline to € 337.4 million with EBITDA virtually unchanged at € 32.3 million.
K + K America
Turnover EBITDA
1998 € 163.2 million € 16.6 million
1999 € 228.0 million € 23.6 million
2000 € 309.3 million € 35.3 million
2001 € 357.9 million € 32.8 million
2002 € 337.4 million € 32.3 million
Cash flow demonstrates group profitability
In 2002 we again achieved higher cash flow. After € 48.3 million in the previous year, cash flow in 2002 was € 53.0 million – an increase of 9.8% and a further demonstration of the profitability of the group.
Cash flow
1998 € 37.3 million
1999 € 46.7 million
2000 € 55.1 million
2001 € 48.3 million
2002 € 53.0 million
Free cash flow again increased to a high positive figure. This is due to the fact that maintenance and rationalisation investments remained at the level of the previous year. In this area we generally deploy 1% to 2% of turnover each year to optimise flows and increase efficiency. With the free cash flow of € 44.4 million, we are in a good position. We repaid our debts on schedule as well as financing further investments in the future growth from company funds.
Free cash flow
1998 € -36.5 million
1999 € -74.5 million
2000 € -114.0 million
2001 € 24.4 million
2002 € 44.4 million
Scheduled depreciation and currency affects reduce balance sheet total
Let us look at the figures that summarise all the results of the financial year, the balance sheet.
First the assets side. Fixed assets declined to € 358.6 million as a result of currency changes and scheduled deprecation on goodwill, intangible and tangible assets. Current assets also declined to € 154.4 million due to currency movements. Thus the balance sheet total declined by 9.9% to € 540.4 million.
On the liabilities side there are two important trends. The equity ratio at TAKKT AG increased 2.9 percentage points to 27.7%. In addition, in euro terms, our indebtedness declined strongly. This is due primarily to the scheduled repayments, but also to changes in currency rates. Interest-bearing liabilities declined to € 291.0 million.
Organic growth expected in 2003
Let us take a look at the comparison with previous years. It is evident that we have performed well, despite the difficult general economic situation. We have maintained or even improved key ratios such as the EBITDA margin, cash flow and profit before and after tax. Our market position is stronger. With the expansion to Asia, new perspectives open up to the company. In 2002 we also gained new clients and optimised structures, thus creating a solid basis for further growth.
TAKKT AG plans share buyback program
That concludes my comments on the figures of TAKKT AG for the 2002 financial year. I would now like to move away from the numbers and direct your attention to the Annual General Meeting. On May 6 this year we will propose to the Annual General Meeting the approval of a share buyback program. At this point, I would like to explain the background to this.
Via a Luxemburg subsidiary, the French insurance group AXA holds a 10.0% stake in TAKKT. The shares are subject to a convertible bond, which are due for conversion in November 2003. In the context of this conversion, up to 10% of our shares could come onto the market. We warmly welcome this conversion, as it considerably increases the free float. Nevertheless, it cannot be ruled out that our stock price could come under sustained pressure in the days immediately after the conversion. As it is our objective that the converted TAKKT shares be absorbed by interested investors, we will implement an intensive road show, lasting at least one week, before the conversation date. At this time we will address investors we know in London, Edinburgh, Paris and Frankfurt, but also contact new funds.
If within the context of the conversion it becomes evident that the market is not able to absorb this relatively large number of shares, for example due to the situation on the markets at the time, we want to be in the position of being able to intervene ourselves.
Particularly from today’s perspective, price pressure on our share cannot be ruled out. This is why we would like to take advantage of the opportunity and buy back own shares. The objective of the share buyback is not the direct retiring of the shares, but rather the creation of an acquisition currency at what today are comparatively favourable prices.
We do not anticipate having to make use of the program, as lively interest has already been signalled by institutional investors.
Nonetheless we want to have the option approved, so that we can intervene on the market should it be necessary.
In the course of the roadshow we wish to further intensify confidence and gain the confidence of investors. At the same time with the share buyback program we wish to assure existing and potential investors that the conversion will occur under stable and calculable conditions.
We shall propose to the Annual General Meeting to initially restrict the program to 18 months. In the framework of the repurchase program, we wish to acquire a maximum of 10% of the shares, i.e. the same volume that could come on the market as a result of the AXA convertible bond. This is equivalent to 7.29 million shares.
I have thus concluded my report. I would like to thank you warmly for your attention. We are now happy to answer your questions.