Speech of Dr Felix A. Zimmermann
Board Member for Finance and Controlling
Only the spoken word applies.
Ladies and Gentlemen,
First of all, I would like to welcome you to our press conference. Mr Gayer has already given you a very good overview of our business. I will now elaborate on the details of our financial statements.
Turnover of the TAKKT Group down by 1.1 percent for currency reasons
The TAKKT Group reported an 8.9 percent decline in turnover from EUR 783.7 million in the previous year to EUR 713.9 million in 2003. This means that the turnover targets we had set ourselves for 2003 were not fully met. As mentioned by Mr Gayer, this is attributable to the strong euro and the continued poor economic environment. The deprecation of the US dollar had a particularly strong impact on the turnover of the TAKKT Group, which is reported in euros. But also the Swiss franc and the British pound lost in value. In exchange rate adjusted terms, the sales decline was only 1.1 percent.
Turnover: order numbers almost unchanged despite decline in turnover
What other factors are relevant for our figures, apart from economic activity and exchange rates?
Basically, there are three parameters which influence the turnover and value of our company. First, the number of new customers. Second, the number of orders placed by our customers. And third, the average order value.
Our performance in terms of winning new customers was excellent. In financial 2003, we were able to win some 200,000 new customers in an economic environment which we all know was extremely difficult. This success is not least attributable to the above-average growth reported by the companies that were established in recent years. TAKKT also benefited from the fact that we did not scale down our advertising efforts; we continue to mail about half of our catalogues to potential new customers. This way, we are winning new customers every day, not only in new markets but also in established markets. Our customer base currently comprises some 2.5 million businesses.
In the weak economic climate, it was only natural to see our existing customers place fewer orders. This kind of spending restraint is only natural in such an economic situation. This decline was offset, however, by the orders placed by our 200,000 new customers. As you can see on the left-hand side of the chart, the total number of orders therefore remained almost unchanged at two million.
Once the economy picks up, we will profit from a broader customer base. Moreover, we will benefit from the fact that the mail order sector has consistently won market share from the wholesale and retail sectors in the past years.
Let’s now take a look at the average order value. Due to the weak economic situation, our customers also reduced the value of their orders. This and the currency effects reduced the average order value by 8.4 percent to EUR 349. With the number of orders unchanged, this decline naturally had a strong impact on turnover. Such purchasing behaviour is, however, absolutely normal in this kind of economic situation. As soon as the economy recovers, the average order value and, hence, the turnover will increase again.
One word about the term “currency effects”, by which I mean, above all, the impact of the US dollar. The dollar’s depreciation against the euro is particularly obvious if we compare the average exchange rate of the year 2002 with that of 2003. In 2002, the euro was worth US dollar 0.9426 on average, while it traded at an average of US dollar 1.1290 in 2003.
Turnover
1999 € 627.5 m
2000 € 762.8 m
2001 € 824.1 m
2002 € 783.7 m
2003 € 713.9 m
Turnover of the TAKKT Group: diversified portfolio
Let’s now take a look at the breakdown of turnover by division and region.
The divisions made the following contributions to total turnover: KAISER + KRAFT EUROPA contributed 50.1 percent, Topdeq 10.5 percent and K + K America 39.4 percent.
The decline in turnover was especially pronounced in Germany, where the difficult economic environment had a particularly strong impact on our activities. Accordingly, domestic turnover dropped by 5.4 percent to EUR 174.0 million. The decline was less pronounced in the other European markets, where turnover was down 2 percent to EUR 247.1 million. In North America, turnover fell by 16 percent to EUR 292.3 million. The newly developed markets, Japan and Mexico, accounted for 0.1 percent of the Group’s total turnover.
Turnover: well-balanced product portfolio
Business equipment continues to be our most important product group. As you can see, our product portfolio has nevertheless become more balanced in recent years. This was not least due to the acquisition of Hubert, which added equipment for the food service industry to our range. The trend towards diversification will continue in the coming years, as products for service companies will steadily gain in importance. This will reduce our exposure to cyclical fluctuations in the manufacturing sector. Overall, the operations of the TAKKT Group today rest on a broad basis. We are dependent neither on a certain industry nor on a specific region.
Gross profit: increase in margin to 40.5 percent
The TAKKT Group continued to increase its gross profit margin to 40.5 percent in the past financial year. In Europe, we benefited from the expansion of the warehouse business, which generally generates higher profit margins than the drop shipment business. This is why the investment in the extension to KAISER + KRAFT EUROPA’s mail order centre in Kamp-Lintfort will also pay off, as the increase in earnings will exceed costs.
The gross profit margin also increased as the difficult economic situation led to an absence of large-scale orders, which are usually subject to discounts and rebates.
The positive development of Hubert, our US subsidiary, and its increased share in the Group’s total business also had a positive effect on gross profit.
EBITDA margin rises despite lower turnover
Let’s now take a look at the figures that reflect TAKKT AG’s profitability. Earnings before interest, taxes, depreciation and amortisation, or EBITDA for short, decreased by 6.6 percent to EUR 80.1 million. The decline is primarily attributable to the changes in exchange rates.
What I would like to stress is that these fluctuating exchange rates have only little influence on our profitability. We were therefore even able to increase the EBITDA margin slightly to 11.2 percent. The stable earnings are not least due to the fact that TAKKT is constantly adjusting part of its capacities to the course of business and expected order volumes. This helped us protect our profitability at a relatively high level.
We also made use of additional cost-saving opportunities, for instance with regard to printing costs, international purchasing and the respective framework agreements with our service providers. Start-up losses for new businesses were more or less on a par with the previous year. Expenses were in line with our projections.
EBITDA
1999 € 72.6 m 11.6%
2000 € 90.3 m 11.8%
2001 € 86.6 m 10.5%
2002 € 85.7 m 10.9%
2003 € 80.1 m 11.2%
EBITA margin within the 9 to 11 percent target range
Next we see earnings before interest, taxes and amortisation, or EBITA for short. Due to currency effects, EBITA declined by 6.4 percent to EUR 70.3 million. At 9.8 percent, the EBITA margin was up on the previous year and within our target range of 9 to 11 percent.
EBITA
1999 € 65.1 m 10.4%
2000 € 81.3 m 10.7%
2001 € 76.4 m 9.3%
2002 € 75.1 m 9.6%
2003 € 70.3 m 9.8%
Rising EBIT margin underlines the Group’s profitability
Let’s now take a look at earnings before interest and taxes, or EBIT for short, which declined by 5.5 percent to EUR 53.9 million. The margin climbed moderately to 7.5 percent. Scheduled goodwill amortisation was on a par with the previous year. No unscheduled amortisation was required. The changes shown are exclusively attributable to currency effects, namely the weakness of the US dollar.
EBIT
1999 € 57.1 m 9.1%
2000 € 68.6 m 9.0%
2001 € 57.7 m 7.0%
2002 € 57.0 m 7.3%
2003 € 53.9 m 7.5%
Earnings before tax rise again due to lower interest expenses
At EUR 40.6 million, earnings before taxes were up on the previous year, as the Group benefited from a EUR 4.9 million increase in net interest income. This was due to the scheduled reduction in total liabilities and the lower interest rates prevailing in the capital market. The weaker US dollar also had a positive effect in the translation to the reporting currency. The profit margin therefore increased at a somewhat higher rate and reached 5.7 percent.
Earnings before tax
1999 € 50.2 m 8.0%
2000 € 55.5 m 7.3%
2001 € 35.5 m 4.3%
2002 € 39.0 m 5.0%
2003 € 40.6 m 5.7%
Earnings after tax almost at previous year’s level despite reduced turnover
This chart shows earnings after taxes. Despite a slightly higher tax rate, we almost reached the previous year’s level, at EUR 24.4 million. The margin reached 3.4 percent.
Earnings after tax
1999 € 31.2 m 5.0%
2000 € 33.5 m 4.4%
2001 € 19.4 m 2.4%
2002 € 24.5 m 3.1%
2003 € 24.4 m 3.4%
High cash flow reflects strong profitability
As in the previous years, we generated a high cash flow of EUR 50.6 million in 2003. This is a clear indication of the TAKKT Group’s high profitability. The 4.5 percent decline is mainly attributable to currency effects. The cash flow margin rose to 7.1 percent.
Cash flow
1999 € 46.7 m
2000 € 55.1 m
2001 € 48.3 m
2002 € 53.0 m
2003 € 50.6 m
Employees: capacity adjustment evident
Let’s take a look at our headcount. The TAKKT Group’s number of permanent employees was down on the previous year as the established companies continued to adjust their headcount to the course of business. The decline was almost exclusively achieved through natural fluctuation. By contrast, new jobs were created by the start-up companies. As of December 31, 2003, TAKKT employed a total of 1,860 full-time employees. KAISER + KRAFT employed 840 people, Topdeq employed 226 and K + K America employed 764, while the holding company, TAKKT AG, employed 26 people. The average employee age was approximately 40 years.
Employees (FTE, average)
1999 1,497
2000 1,674
2001 1,973
2002 1,932
2003 1,888
Consolidated balance sheet: total assets lower as result of currency effects
The next two charts show the most important figures from our consolidated balance sheet.
On the assets side, the situation is as follows: At EUR 26.2 million, scheduled amortisation of goodwill and depreciation of tangible and intangible assets remained almost unchanged from the previous year. The Group’s total fixed assets declined to EUR 311.8 million, not least due to the weakness of the US dollar. Current assets decreased to EUR 168.1 million, also due to currency effects. As a result, total assets were down to EUR 479.9 million.
The consolidated balance sheet and the individual subsidiary balance sheets are generally characterised by very stable and comparable structures. This means that currency translation does not lead to structural changes in the consolidated balance sheet.
Consolidated balance sheet: increased equity ratio of 32.8 percent
On the liabilities side, two trends deserve mentioning from our point of view:
First, the equity ratio has risen to an excellent 32.8 percent. Since the acquisition of Hubert in 2000, we have steadily increased the equity ratio. Second, our liabilities have declined noticeably. While this is in part due to the changes in exchange rates, it is primarily the result of scheduled debt repayments. Interest-bearing liabilities thus declined to EUR 238.6 million.
KAISER + KRAFT EUROPA: main contributor to turnover and profitability
Ladies and gentlemen, let’s now take a look at the individual divisions of the TAKKT Group: I will start with KAISER + KRAFT EUROPA, which contributed EUR 357.9 million, or approximately 50 percent, to the Group’s total turnover. Due to weak economic activity, the division’s turnover was down 2.5 percent on the previous year. In exchange rate adjusted terms, the decline was only 1.2 percent. Business in the individual European countries developed differently. German customers, in particular, clearly reduced their orders. Turnover was also down in the Netherlands and the UK. By contrast, KAISER + KRAFT and KWESTO in Eastern Europe developed favourably and presented good results.
Despite the slightly reduced turnover, KAISER + KRAFT EUROPA’s profitability continued to grow. At EUR 56 million, EBITA even reached a new record, with the EBITA margin rising to an excellent 15.7 percent.
KAISER + KRAFT EUROPA
Turnover EBITA
1999 € 326.6 m € 40.6 m
2000 € 366.4 m € 48.3 m
2001 € 383.3 m € 53.2 m
2002 € 367.2 m € 55.1 m
2003 € 357.9 m € 56.0 m
Topdeq: results in line with expectations
Turnover at Topdeq, our design-oriented brand, was affected by the weakness of the European market for office furniture and declined by 5.9 percent to EUR 74.6 million. In exchange rate adjusted terms, the decline was only 2.6 percent. EBITA improved slightly over the previous year, but remains negative at EUR -1.2 million. The same applies to the EBITA margin, at -1.6 percent. Overall, results were in line with our expectations.
Customers’ spending restraint was particularly evident in Germany, Switzerland and the Netherlands. Many small and medium-sized service providers, which represent Topdeq’s main customer group, reduced their orders due to the weak economy. Moreover, the number of new business start-ups in Germany was again down noticeably on the previous year. Accordingly, the three Topdeq companies reported a drop in orders and a lower average order value. The number of new customers was also down on the previous year.
The established Topdeq companies nevertheless continued to operate profitably in their markets. However, their profits were insufficient to offset the projected start-up losses incurred by the young companies in the USA and France. Both these companies developed favourably and reported strong growth, not least due to the expansion of their delivery ranges.
Topdeq
Turnover EBITA
1999 € 73.0 m € 8.5 m
2000 € 87.1 m € 7.7 m
2001 € 83.0 m € -0.4 m
2002 € 79.3 m € -1.5 m
2003 € 74.6 m € -1.2 m
K + K America: turnover down due to currency effects; good profitability
Let’s now talk about the K + K America division, which comprises C&H Distributors, Avenue Industrial Supply, Conney Safety Products and Hubert Company.
Between them, they generated EUR 281.4 million in turnover, down 16.6 percent on the previous year. The decline is primarily attributable to the depreciation of the US dollar. EBITA also dropped by 21.8 percent to EUR 22.6 million due to currency effects. At 8 percent, the EBITA margin was down on the previous year.
K + K America
Turnover EBITA
1999 € 228.0 m € 21.7 m
2000 € 309.3 m € 32.6 m
2001 € 357.9 m € 29.1 m
2002 € 337.4 m € 28.9 m
2003 € 281.4 m € 22.6 m
K + K America: turnover in US dollar almost stable
If we look at the division’s figures in US dollars, we can see the strong currency impact. On a dollar basis, K+K America’s turnover remained unchanged from the previous year, at US-dollar 317.7 million. EBITA declined slightly to US dollar 25.5 million.
As in the previous year, Hubert again made a significant contribution to our results. The company specialises in products for the retail and wholesale food service sectors and is therefore less exposed to cyclical fluctuations.
K + K America in US dollar
Turnover EBITA
1999 $ 243.0 m $ 23.1 m
2000 $ 285.6 m $ 30.1 m
2001 $ 320.5 m $ 26.1 m
2002 $ 318.0 m $ 27.3 m
2003 $ 317.7 m $ 25.5 m
The TAKKT share: AXA-held shares well absorbed by the market
I would now like to say a few words about the TAKKT share and its performance in the past year.
As you may know, the TAKKT share has been listed in the Prime Standard since January 2003. Admission to this premium segment reflects our commitment to a policy of pro-active, open and timely communication. This includes the publication of quarterly reports as well as accounting under International Financial Reporting Standards, or IFRS for short.
Our shareholder structure changed in the past year, as a convertible bond issued by the AXA Group in March 1998 matured on November 12, 2003. The 10 percent stake held by AXA was spread to a large number of investors. AXA had sold all TAKKT shares not required for the conversion already in August and September of last year.
We had previously instituted a share buyback program which would have allowed us to respond to a potential situation of the TAKKT shares not being sufficiently absorbed by the capital market in the context of the conversion. We did not have to make use of this program, however, as the shares met with great investor interest.
After the conversion, the free float increased to 27.45 percent, while 72.55 percent were held by Franz Haniel & Cie. GmbH, Duisburg, as of December 31, 2003.
Let’s now take a look at the performance of the TAKKT share in the past year and compare it with the performance of the SDAX.
Our chart first shows the weak start in January, which we clearly attribute to the poor economic outlook at the beginning of 2003. The share price improved in the spring, immediately after our road show, which took us to investors following our financial statements press conference. At this time, economic activity also picked up slightly, and the price of the TAKKT share reached approximately EUR 4.50. It continued to move sideways at this level for quite some time, which we attribute to market uncertainties relating to the conversion of the AXA bond.
As we know today, these uncertainties were unfounded. There was strong investor demand for the shares, and the free float increased. This had a positive effect on the share price, which has pointed upwards since autumn 2003, additionally fuelled by improving economic projections.
As of December 31, 2003, 72.9 million shares outstanding at a share price of EUR 5.90 represented a market capitalisation of roughly EUR 430 million.
Key figures: stable dividend and payout ratio
We are very pleased to be able - as Mr Gayer mentioned before - to pay our shareholders an appropriate share in the result of the past financial year. This is made possible by our stable earnings figures and the high cash flow. The Management Board will therefore propose to the Annual General Meeting to pay an unchanged dividend of EUR 0.10 per share. This is equivalent to a constant high payout ratio of 31 percent.
Ladies and gentlemen, this concludes my presentation. Let me summarise briefly.
The figures show that the strategy of TAKKT AG again paid off in the past financial year. We were able to mitigate the adverse economic impact with the help of our diversified customer and product portfolios. Active cost management also had a positive effect on the results of the TAKKT Group. This means that the conditions are in place for the TAKKT Group to continue to grow and increase its profitability.
Ladies and gentlemen, thank you very much for your attention. We will now gladly answer any questions you may have.