Speech of Dr Florian Funck
CFO
Only the spoken word applies.
Ladies and Gentlemen,
I would also like to welcome you. As Georg Gayer has already explained, TAKKT is looking back on an extremely successful year. I would now like to explain how this is reflected in the Group's financial statements.
Turnover: currency adjusted organic growth by 5.9 percent
The development of TAKKT’s turnover can be summed up very easily: very pleasing. In the reporting year 2005 we generated a turnover of EUR 773.2 million. This marks an increase of 6.3 percent against the previous year. In currency adjusted terms this increase amounts to 5.9 percent. This growth was possible because TAKKT's three value and growth drivers developed positively. We gained numerous new customers, increased the number of orders and average order values. All divisions are reporting increasing turnovers.
The fact that turnover has increased is all the more pleasing because it generated against the backdrop of flagging economic development in our core markets. Economic growth in North America and Europe slowed compared to 2004. Growing against the economic trend can be attributed to three factors. Firstly, we continued to improve our product ranges and services. Secondly, we were able to benefit from our growth initiatives in previous years. With this I am referring to newly established companies as well as intensified advertising measures.
Turnover: diversified portfolio
The third reason for our success is TAKKT Group’s broadly based positioning. Our three divisions are directed at more than two million customers from a range of industries. This makes us largely independent from individual customers. By operating in more than 25 countries we are able to more easily compensate economic ups and downs in individual markets.
This slide shows how turnover is spread across divisions and regions. Proportions remained quite stable compared to the previous year as all three divisions generated healthy growth. KAISER + KRAFT EUROPA remains the division with the highest turnover. The company accounts for around 52 percent of total turnover. Thanks to its marked rise in turnover, Topdeq increased its share in the Group’s turnover from 10.2 to 10.6 percent. K + K America contributed 37.5 percent to turnover, which is generally in line with the previous year.
There wasn’t any major structural shift in the regional distribution of the Group's turnover compared to the previous year, too. As you can see, turnover is mainly spread across three regions. The Group generated EUR 184 million turnover in Germany against approx. EUR 180 million the year before. Based on the Group’s strong international growth the German share of turnover has fallen from more than 50 percent to now around 23.8 percent in the course of the last 20 years. The remaining European markets account for 36.4 percent of the Group’s turnover. The share of the companies in North America increased slightly to 39.5 percent. Companies in Japan and Mexico, which are included in the slide as “others”, contributed 0.3 percent to turnover. In 2004 these regions accounted for only 0.1 percent of turnover. As you can see, the regions Asia and Central America have a lot of growth potential and it doesn't take much imagination to picture that this share is going to be significantly higher in 5 years.
E-business TAKKT Group: continuous increasing impact
TAKKT doesn’t only break its turnover down according to divisions and regions. A further differentiation is made in how the order is issued, i.e. by mail, fax, phone or online. We are noticing that the Internet is becoming increasingly important for our business. In the past five years the share of turnover generated by e-business has increased by an average of 35 percent annually. In 2005 more than nine percent of turnover was generated via the Internet, this means that every 11th order is reaching our sales divisions online. Topdeq USA is leading the field in terms of e-business. The company receives around 30 percent of its orders via the Internet.
TAKKT generally differentiates between two kinds of e-business. Firstly, e-commerce, which refers to online orders issued using our websites. The second is e-procurement, which involves integrating a tailored online catalogue into our customers’ intranet. Both approaches have contributed to the positive development of the online segment and the online proportion has increased in all three divisions.
Gross profit: increase of margin to 41.4 percent
As I mentioned earlier, TAKKT’s turnover has increased. This alone is a huge success, but we have also been able to do this in conjunction with a higher gross profit margin, which means that we are growing profitably.
In actual figures this means that the gross profit margin increased to 41.4 percent. All divisions contributed to this increase by improving their product ranges, their procurement and their service.
TAKKT’s gross profit margin not only includes profits from trading goods, i.e. the difference between sales and purchase price, but also includes freight costs and turnover. TAKKT has been able to keep its freight margin stable despite generally steeply increasing fuel costs.
EBITA: margin above target corridor of 9 to 11 percent
Increasing gross profits are the basis for improved EBITA, i.e. earnings before interest, tax and amortisation. EBITA increased from EUR 78.2 to 88.9 million. The EBITA margin is 11.5 percent and exceeded our long-term target bandwidth of between nine and eleven percent for the first time. In addition to increased gross profit margins, all divisions improved their processes and increased their efficiency, despite additional start-up costs for five new companies on three continents.
Profit before tax: significant increase also due to IFRS 3
As you can see on this slide, profit before tax has also increased significantly. The same applies to the margin which reached 10.2 percent after 7.1 percent in the previous year. In addition to improving operating performance another positive effect was that TAKKT reduced borrowings and consequently improved its interest result.
The first time adoption of the international financial reporting standard IFRS 3 in 2005 was another reason for increased earnings. According to this standard, scheduled amortisation of goodwill is no longer permissible. In the previous year this item accounted for EUR 15.7 million.
Instead of scheduled amortisation, goodwill is now tested for impairment annually. Based on the strong cash flow in TAKKT’s business there was no reason for such an impairment in 2005.
Profit: increase at stable tax rate
The abolition of amortisation on goodwill generally results in TAKKT’s tax rate being lower. In 2004 one-off tax refunds had reduced the tax rate. This explains why the 36 percent tax rate in 2005 was at the level of the previous year despite amoritsation no longer being permissible.
At this tax rate, TAKKT increased its profits to EUR 50.4 million, of which 0.7 million are attributable to minority interest and EUR 49.7 million to TAKKT AG shareholders.
Cash flow: high level proves profitability
Our cash flow has reached a new high. In 2005 it was EUR 65.5 million or 8.5 percent of Group turnover. This excellent figure is the best proof of our high profitability.
An important note for you: we have revised the calculation of our cash flow in the context of IFRS 3. The cash flow is now calculated as profits plus depreciation and deferred taxes. This eliminates the distorting effects of non-cash deferred taxes.
Motivated employees allow for gain in profitability
Ladies and Gentlemen,
TAKKT’s success would not have been possible without the dedication of our staff. They made a major contribution to improving our customer service and streamlining internal processes. This enabled us to further increase our productivity in the last years. TAKKT AG’s Management Board would like to take the opportunity to thank all members of staff for their excellent work.
In order to continue our growth we are going to need more dedicated employees in the future. We therefore increased the number of full-time employees at the end of 2005 to 1,868. Of which 854 are employed at KAISER + KRAFT EUROPA, 209 at Topdeq and 778 at K + K America. The TAKKT Holding employs 27 members of staff.
Balance sheet: organic growth and currency effects extend total assets
Let’s now move on to the consolidated balance sheet. Its key figures improved in the financial year 2005. I would also like to point out something before I continue. The acquisition of NBF group is not included in our balance sheet figures as of 31 December 2005 as we took over NBF’s operations on 2 January 2006.
On the date of the balance sheet, 31 December 2005, the Group had assets worth EUR 499.9 million. Currency effects, especially in the case of the US-dollar, are the main reason for changes in assets. Long-term assets were recorded at EUR 310.3 million. The largest position in this item is EUR 227.5 million for goodwill. As mentioned before, this is no longer subject to scheduled amortisation since the adoption of IFRS 3. The change against the previous year is therefore due to currency translation.
Inventories also increased because of currency effects. We have also increased inventories in currency adjusted terms. This enabled us to keep our delivery service at a superior level in the wake of higher turnovers.
Apart from currency effects there were no material changes in current receivables and assets compared to 2004. Trade receivables increased slightly in line with higher turnover. Customers’ payment practices remained stable: on average the collection period was around 40 days, which is the same as the year before.
Balance sheet: strengthened equity ratio of 46.1 percent
Figures for liabilities are also extremely positive. We have significantly increased equity and reduced our net borrowings. On 31 December 2005 they were EUR 156.5 million compared to 182.3 million in 2004. Net borrowings change with currency effects as financing is generally undertaken in the local currency based on expected cash flows. In 2005 currency effects, especially from the US dollar, increased net borrowings by EUR 17.0 million. We made repayments of EUR 41.6 million from our cash flow.
KAISER + KRAFT EUROPA: main contributor to turnover, high profitability
After presenting the financial situation of the Group I would now like to move on to our three Group divisions. I will start with KAISER + KRAFT EUROPA, the division which generated the highest share of turnover with EUR 401.3 million. Compared to the previous year the division recorded an increase in turnover of 5.7 percent. This higher turnover was driven by more orders and higher average order values.
Almost all subsidiaries contributed to this success. Subsidiaries in Japan, France and Scandinavia developed particularly well. German companies also improved against the previous year and largely met expectations.
KAISER + KRAFT EUROPA’s profitability, already at a high level, saw another slight improvement. As you can see on this slide EBITA improved from EUR 61.2 to 65.6 million, with the EBITA margin rising from 16.1 to 16.3 percent. This increase is driven by the improved gross profit margin. This enabled us to more than compensate higher advertising expenditure. Increased advertising expenditure can be attributed to two things. On the one hand, KAISER + KRAFT EUROPA increased the catalogue circulation in its established markets over-disproportionately. On the other hand, planned start-up costs for founding new companies in China, Romania and Turkey had to be borne. These start-up costs are mainly catalogue costs to build up a customer base.
Topdeq: successful redirection brings turnaround with double-digit growth
2005 was a good year for the Topdeq division with turnover up by ten percent. This success can be mainly attributed to the successful positioning of Topdeq as a premium brand. The fact that the European office furniture market is recovering after a number of years in crisis also had a positive effect.
With the exception of Topdeq Germany, all subsidiaries increased their turnover, which also drove up the division’s profitability. The EBITA margin rose from minus 2.9 to plus 1.3 percent. This was due to increased gross profit margins, improved efficiency and better capacity utilisation of central infrastructure.
K + K America: sound increase in turnover and profitability
Our third division – K + K America – continued its success story of the past years, despite the flagging US economy. Turnover was up by 6.0 percent in dollar and euro terms.
All subsidiaries developed positively. This applies especially to Hubert in the USA, Avenue in Canada and C&H in Mexico, which all saw significant growth. The division’s profitability has increased once again. EBITA was recorded at EUR 30.1 million, around 12 percent more than the previous year. The EBITA margin was up from 9.8 to 10.4 percent, with the higher gross profit margin being the main driving force. The division was able to benefit from a structural effect as the subsidiary Hubert had the highest gross profit margin in the K + K America division and saw particularly strong growth, as previously mentioned.
Key figures per share: good development
Positive growth rates in the three divisions have also had a positive effect on key figures per share. Cash flow per share is 90 cent and 8.4 percent above the record set in 2004. Earnings per share are also extremely positive at 68 cent.
Last year we raised the dividend by 50 percent to 15 cent per share. We are going to propose this amount again at the Annual General Meeting to ensure that shareholders again participate in TAKKT's success appropriately. As a result of the NBF acquisition we are refraining from increasing the dividend again, as additional funds have been earmarked from January 2006 as a result of the takeover. If the acquisition had been recorded at the end of 2005 the equity ratio would have been around 40 percent, the same as in the previous year.
TAKKT share: steady upward trend
Let’s now move on to an important indicator of our work. The development of the TAKKT share. As you can see, the share continually moved up last year – up 25.7 percent from 1 January 2005 to 31 December 2005. The SDAX rose slightly more last year, but at the beginning of the current year in particular our share increased markedly, so that we have beaten the index in a 52 week comparison.
The total number of shares remained unchanged at 72.9 million. On 31 December 2005 this represented a market capitalisation of EUR 692.6 million. The shareholder structure has not changed either. Franz Haniel & Cie. GmbH continues to hold 72.7 percent of the shares. The remaining 27.3 percent are broadly spread between institutional and private investors.
Reporting: EBITDA as future key figure for profitability
Ladies and Gentlemen,
Before Georg Gayer gives you an outlook for 2006 I would like to draw your attention to a change in our core key figures in communications. Until now we generally applied the EBITA key figure, i.e. earnings before interest, tax and amortisation, to report on our company's profitability. As a result of applying IFRS 3, assets which were previously accounted for as goodwill have to be allocated to other intangible assets as far as possible. These assets can be e. g. customer lists which are then again subject to scheduled amortisation. This means that the amortisation of goodwill, which is no longer permissible, is compensated in part by additional amortisation on other identifiable intangible assets when a company is acquired. This causes the problem for us and the public that operating profitability of existing companies and new acquisitions is no longer comparable at EBITA level. Because of that TAKKT will in future use EBITDA as the key figure for operating profitability. This figure is adjusted by interest, tax, depreciation and amortisation. TAKKT is also adjusting its target bandwidth for operating profit. Until now the target was an EBITA margin between nine and eleven percent. As depreciation accounts for about 1 percent of TAKKT’s turnover the target is being adjusted to an EBITDA margin of 10 to 12 percent. We are also going to be issuing our profitability forecasts in EBITDA terms.
Enough about the technicalities. Let me hand over to Georg Gayer and the topic “outlook 2006”.