Speech of Georg Gayer
CEO
Only the spoken word applies.
Ladies and Gentlemen,
I would like to welcome you to the TAKKT AG financial statements press conference. During the coming one and a half hours we will be informing you about the – and this much I can tell you already - extremely successful financial year of the TAKKT Group.
Those of you who have already attended a TAKKT financial statements press conference will know that our financial statements press conference is made up of several parts. To start with I will be outlining key developments and highlights of the past year. Our CFO Dr Florian Funck will then be presenting TAKKT Group’s figures. After that I will explain our forecast for the current financial year. Once this is concluded the Management Board will be pleased to answer any questions.
TAKKT 2005: expectations exceeded
Last year at just this point I explained that we had exceeded our expectations for the financial year 2004. I am pleased to be able to report the same once again for 2005. We have significantly increased our success. Let's take a look at turnover. It has not increased by three percent in currency adjusted terms as forecasted but by 5.9 percent.
In 2005 we were able to increase all earnings figures and further improve profitability. The EBITA margin is above our long-term target of between nine and eleven percent, despite higher planned start-up costs for establishing new companies. This underlines that TAKKT operates highly efficient and scalable mail order platforms.
Thanks to sound earnings figures, a comparatively low investment ratio and a stable balance sheet structure, we have been able to reduce our borrowings by EUR 41.6 million. This has again enabled us to improve our equity ratio. This success has only been possible as all TAKKT divisions have again improved their performance.
TAKKT 2005: highlights
Moving on to the highlights in 2005. Let me start with an award which is of great importance to us: the “Sterksten Schakel 2005” award. This entrepreneur’s award was presented to Vink Lisse, our Dutch subsidiary in our KAISER + KRAFT EUROPA division, last year. The company was commended for its excellent service. This prize proves the following: TAKKT continually optimising its service pays off. We are going to continue down this path in the future.
Another highlight in 2005 was successfully changing the catalogue strategy in KAISER + KRAFT Group. Instead of mailing catalogues twice a year these will now be mailed three times a year. On top of creating an additional impulse we are also able to place new products more quickly and adapt sales prices to market conditions.
All in all we have driven internationalisation strongly in 2005. Having a good customer base is the precondition for high profitability. New customers are important for the future.
Our strategy is to successfully apply our business model in new promising markets. China certainly qualifies as such a market. China has huge potential for us and is one of the key investment areas for our European and North American customers. In October 2005 we were granted permission to establish a company in China. We are the first Western company in the B2B mail order business to have been granted a license allowing sales throughout China.
KAISER + KRAFT EUROPA also enhanced its European operations. The new company founded in Turkey already started operating business in May last year. From its base in the metropolis of Istanbul, KAISER + KRAFT Turkey is now serving the economically vibrant region between Istanbul, Izmir and Ankara.
KAISER + KRAFT EUROPA’s Eastern European subsidiary KWESTO also continued its expansion in 2005. Since September customers in Romania have been able to order office, business and warehouse equipment from the mail order company, which they are doing – well beyond our expectations.
Our largest division KAISER + KRAFT EUROPA expanded into three markets in 2005. Our other two divisions Topdeq and K + K America also continued to roll-out their business model. Let's start with our specialists for premium designer furniture and accessories Topdeq. Their business was slow during the past years because of the weak market for office furniture. 2005 saw Topdeq reach a turning point. The division generated double-digit growth amounting to ten percent. Topdeq also started operating in Belgium. As customers are being served from Germany we have been able to continue to optimise capacity utilisation at our mail order centre in Pfungstadt. The part financial year at Topdeq Belgium also exceeded our expectations.
K + K America saw two highlights in 2005: Firstly, the new Hubert company in Canada started sales activities for the Canadian market in July as planned. These were formerly in the hands of Hubert in the US. Secondly, TAKKT signed the contract to acquire the US company NBF in November 2005, which has been part of K + K America since 2 January 2006. I will be explaining just why this takeover is such a strategic success in a moment.
Before we come to that, let me just touch on a subject matter which particularly delighted our shareholders in the first half of the year: compared to 2004 we increased the dividend by 50 percent to 15 cent per share.
TAKKT is also leading-edge when it comes to financial communication. We have always been dedicated to informing shareholders quickly and professionally about latest developments. Transparency and dependability are crucial. Last year we received an award for our investor relations work. TAKKT came third in the SDAX in the renowned investor relations award presented by the German business magazine “Capital”.
NBF: business overview
Ladies and Gentlemen,
As already mentioned, the takeover of NBF is a great strategic success for TAKKT. So that you can fully appreciate its significance, I would like to start off by explaining what this abbreviation stands for.
NBF is short for National Business Furniture. The company employs 120 members of staff and is the US market leader for B2B office furniture mail order. NBF is headquartered in Milwaukee – incidentally, just the same as C&H – and owns five brands. Its lead brand is National Business Furniture which sells traditional US office furniture to a broad range of companies. The product ranges sold by the brands Alfax and Dallas Midwest are tailored to non-profit organisations such as schools, universities and public authorities. NBF Group also owns the brands OfficeFurniture.com and FurnitureOnline.com, which sell their goods exclusively via the Internet. In total the NBF product range includes more than 11,000 articles.
You may be asking yourself why NBF was up for sale at all. The former owners George and Julie Mosher wanted to retire after a successful business life. But before they retired they wanted to know that their life's work would be in good hands. TAKKT can offer them peace of mind here.
NBF: logical development of TAKKT portfolio
NBF fits to our business model perfectly. NBF is also a B2B mail order company for durable goods which are not sensitive to price swings. It also has a fragmented customer and supplier base and has the potential for duplication in other countries.
The decision to buy NBF was made all the more favourable by the following factors:
Firstly, we are enhancing our product range in North America in the segment office furniture. K + K America’s positioning in this segment was comparatively weak until now. Secondly, we are broadening our customer base and are even less susceptible to economic cycles as NBF has numerous customers from the service sector, which is growing very dynamically in the USA. By taking over NBF Group we are also balancing our regional business activities. After the takeover, K + K America will be turning over almost as much as KAISER + KRAFT EUROPA.
TAKKT 2005: Corporate Governance
Buying NBF and venturing into new markets were important decisions which we are making as transparent as possible in the true sense of responsible corporate governance. Especially, as protecting the interests of our shareholders has always been at the top of our agenda. The Management and Supervisory Boards once again issued a Declaration of Conformity on 31 December 2005 to the recommendations of the governmental commission German Corporate Governance Codex. We are fully complying with the rules of the codex with two justifiable exceptions.
The first exception is that TAKKT does not publish any details about the compensation of individual members of the Management and Supervisory Boards. We are already publishing the total compensation for the Management and Supervisory Boards. Personalised information would hardly provide any additional information but be an invasion of the privacy of individual members of these Boards. I would like to spare you and myself any further comments on this issue.
The second exception is that we have not installed an audit committee for the Supervisory Board. I can’t see any disadvantage here as this body only has nine members, which is comparatively small.
Ladies and Gentlemen,
Before I hand you over to Florian Funck, please allow me to make some closing remarks. The successes which I have just described can be attributed to the exceptional commitment of our staff. We owe them our particular thanks.
Thank you for your attention.
Outlook 2006: basic economic conditions
Ladies and Gentlemen,
As you can see, last year was an extremely positive year for TAKKT and we are confident that we are going to see significant increase in turnover and profits in 2006. As we are not completely independent of economic developments I would like to give you an economic forecast for the years 2006 and 2007.
Our business is less dependent on the exact growth rates but more on the trend, i.e. if GDP growth rates are going to be above or below the previous year's rates. We are getting different signals from Europe and North America. Experts are expecting the economy in Europe to be slightly better than last year, even if only at a low level. Germany is expected to see slightly stronger growth rates, but again at a low level. The World Cup and stronger domestic demand ahead of the planned increase in VAT could have a positive effect in 2006. TAKKT is currently seeing signs that this cautious optimism expressed by economists for Europe is not unjustified.
In the USA however growth rates are expected to further slump in the coming years. Reasons for this contracting forecast can be found in interest rate increases during the last months and normalisation on US real estate markets, which will feed through from US consumers to producers.
Outlook 2006: initiatives for growth
We are going to continue our growth strategy in 2006 against this economic background. This strategy includes three tools, which are all going to be applied in 2006. The first tool is acquiring mail order platforms. As already explained at the beginning, the acquisition of NBF group is a vital step which perfectly complements our portfolio. This however doesn’t mean that we are going to be sitting back when it comes to acquisitions. Let me say this much: we are continuing to speak to candidates.
The second instrument is setting up new companies. In 2006 we will be starting operating business with three new companies. KAISER + KRAFT China already mailed its first catalogues in the greater Shanghai area. We are extremely pleased with customers' reactions so far. As in Japan, we will be increasing the number of pages and the mailing radius step by step. By setting up Gaerner in France we are continuing our two-brand strategy which has already proven its success in Germany, Switzerland, Austria, the Netherlands and Great Britain. Customer surveys show that companies usually use two to three suppliers for office and business equipment. With the introduction of a two-brand strategy we are increasing the chance that we can channel customers demand to TAKKT. This can be done efficiently as both brands use the same central infrastructure. Topdeq will be starting operations in Austria in September. Customers cannot only look at Topdeq's designer furniture and accessories in the catalogue, but also first hand in a Vienna showroom. Goods are shipped from Germany. This enables Topdeq to further increase capacity utilisation at its mail order centre in Pfungstadt.
As a third tool we have planned measures for all three divisions to further drive customer acquisition and tap customers’ full potential. An example for this could be KAISER + KRAFT mailing a special advertising medium to acquire new customers in central European markets, after tests showed promising results last year. A range of examples could be added which show that TAKKT is sticking to its growth track when it comes to advertising circulation and impulses.
Outlook 2006: TAKKT key figures
After looking at the economic background and our key growth measures in 2006 we would now like to move on to the question how this will all impact TAKKT Group's figures. All in all we can say that, according to our plans, turnover and profits will increase positively. All three divisions will contribute.
Excluding the NBF acquisition and without currency effects our growth in turnover in 2006 will be around four to five percent. We are expecting that the economic upturn seen during the first weeks of the year will not last for the full year. With this forecast we are sticking to our target of growing at least two percentage points above the economies in which we are operating.
Including the NBF acquisition the Group’s growth in turnover will be above 18 percent. The NBF acquisition and our increased start-up costs for new and young companies will impact our profitability in 2006. We will however be continuing to generate gross profit margins of above 40 percent, while maintaining our EBITDA margin within our target corridor of between 10 to 12 percent. To be more precise, we are planning a value at the upper range of our target corridor.
I am confident that after the pleasing results and the planned initiatives Dr Funck and I have presented, our optimism for the current year is justified. Our unique business model remains our greatest strength. Based on this we will continue to be successful in the future.
Ladies and gentlemen, thank you for your kind attention. We would now like to answer your questions.