Speech of Dr Florian Funck
CFO of TAKKT AG
Only the spoken word applies.
Ladies and Gentlemen
I would also like to welcome you. As Georg Gayer has already described, the business development of TAKKT in 2006 was very positive. I would now like to back this up in detail with figures and highlight which factors have had a positive impact on the Group’s financial statements.
In addition to the positive key figures there is a second subject which will be touched multiple times in my report: The acquisition of NBF, which impacted growth and profitability in 2006. In order to highlight these effects I will also be explaining some acquisition-adjusted figures.
Turnover: currency-adjusted growth by 24.4 percent and by 10.1 percent ex NBF
Positive throughout – is how the development in turnover at TAKKT can be described last year. In 2006, the Group generated a turnover of EUR 958.5 million. Compared to 2005 that constitutes an increase of 24.0 percent. Actual exchange rates did not have a material impact on 2006 income statement key figures. At unchanged exchange rates consolidated turnover would have been up by 24.4 percent.
In the year under review the increase in consolidated turnover was considerably higher than in the past 20 years, which was still on average 12 percent.
All three value and growth drivers have contributed to this positive development at TAKKT. Firstly, TAKKT has won another 70,000 customers organically. Secondly, the total number of orders increased by 10.2 percent. And thirdly, average order values were also up. All three divisions have contributed to the increase in turnover. More on that later.
This very positive development in turnover was of course supported by the NBF acquisition and especially in Europe by the economy picking up. Of the 24 percent growth, 14 percentage points can be attributed to NBF. But: our organic growth of ten percent is clear proof of the strong growth potential of the TAKKT business model and the opportunities of B2B mail order. One percentage point in turnover growth is accounted for by companies newly founded in 2005 and 2006.
Turnover: portfolio further diversified due to NBF acquisition
Ladies and Gentlemen
This chart outlines that TAKKT has a broad base as far as divisions and regions are concerned. Compared to 2005 there were changes which can be mainly attributed to the NBF acquisition. KAISER + KRAFT EUROPA remains the division with the highest turnover. In 2006, the company generated 47 percent, just under half of consolidated turnover. At the same time, the share of turnover contributed to TAKKT Group by K + K America increased by 6.5 percentage points to now 44 percent. The proportion of Topdeq in turnover dropped slightly to 8.9 percent.
From a regional point of view consolidated turnover continues to be mainly spread across three regions. In line with the changes in divisions there were also shifts as a result of the NBF acquisition. Based on 2005 the share of North America increased as expected. Shares of the remaining regions have however dropped. Exception: so-called “other markets”, which refer especially to Asia, increased. Expressed in percent the shares are as follows: in 2006 Germany generated 21 percent of consolidated turnover, other European markets generated 33 percent. and the share of companies in North America now accounts for 45.6 percent. This leaves the “others”, i.e. Asia and Mexico. They contributed 0.4 percent to the turnover of TAKKT Group.
E-business at TAKKT: continues to gain significance
We are not only interested in how many orders reach us annually, but also through which channels orders reach our divisions. We therefore break down turnover according to order channels, i.e. if orders are placed by letter, fax, phone or if they reach us online. We can clearly see that the trend towards online orders continued in the year under review. In the last five years the share of e-business increased by an average of around 40 percent every year. In 2006, online order volume reached double-digits for the first time at 12.1 percent. All three divisions contributed to this growth. Thanks to the NBF acquisition we now even have the three brands OfficeFurniture.com, FurnitureOnline.com and OfficeChairs.com, which sell office equipment solely online.
TAKKT generally differentiates between two kinds of e-business: e-commerce and e-procurement. E-commerce refers to online orders generated by different TAKKT web shops. In the case of e-procurement however a tailored online catalogue is integrated into the customers' intranet or provided on procurement marketplaces. Both channels have contributed to enhancing online orders.
Gross profit: margin above 40 percent even after NBF acquisition
Even if the 2006 figures are at the centre of attention at this financial statements press conference, I would nonetheless like to draw your attention to the long-term development of the gross profit margin of the Group. TAKKT was and is able to generate high and strong gross profit margins regardless of the prevailing economic conditions. This margin level is also the basis for the continually high profitability of our business model.
In 2006, the gross profit margin dropped from 41.4 to 40.6 percent. This however is attributable to the NBF acquisition. Currently NBF is generating gross profit margins which are below the average of TAKKT Group. Without NBF the gross profit margin of the Group would have increased slightly to 41.6 percent. This can be attributed to a streamlined product range, more favourable purchasing terms as well as better service.
EBITDA: margin above prior target corridor of ten to 12 percent
Ladies and Gentlemen
Let’s now move on to EBITDA, i.e. earnings before interest, tax, depreciation and amortisation. TAKKT uses this key figure as a measure of the operative profitability of the business. In 2006, we reached a new record at approximately EUR 120 million.
The EBITDA margin of the year under review is 12.5 percent and therefore above our long-term target corridor of ten to 12 percent. Compared to the previous year the margin is slightly down. The only reason is the NBF acquisition. As mentioned before NBF is currently generating margins which are below the TAKKT average.
Just to ensure that you are not getting the wrong impression: TAKKT is and continues to be highly satisfied with NBF. Swift integration into the Group continues to go to plan. And in the first year of being part of TAKKT Group profitability increased. Before the acquisition NBF recorded an EBITDA margin of about five percent. This is now around seven percent.
Without the NBF acquisition the EBITDA margin would have increased to 13.2 percent – despite planned start-up losses for new and young companies such as in France, China and Austria. This was based on the high and stable gross profit margin just described as well as economies of scale on the back of improved capacity utilisation.
As Mr Gayer mentioned earlier up to now we have had an EBITDA margin corridor of ten to 12 percent. In 2005 and in 2006 we exceeded this corridor. From 2007 we are raising our target margin corridor by one percentage point. It is therefore now at eleven to 13 percent. This is the result of a positive long-term earnings outlook at KAISER + KRAFT EUROPA as well as running projects to improve the profitability at Topdeq and K + K America.
Profit before tax: clear increase
Profit before tax also developed very positively and increased by 18 percent as you can see on this chart. The margin did fall slightly, but this is solely attributable to technical effects of the NBF acquisition being interest and depreciation.
In the course of the first-time consolidation of NBF the purchase price was allocated partly to identifiable intangible assets. These are now being depreciated since the beginning of the year. This alone is impacting profits with about EUR 4 million. Translated into margin terms, that makes 0.4 percentage points.
In addition the purchase price for NBF was paid at the beginning of the year under review, increasing borrowings and interest expense in the Group. In line with that, the financial result fell from around EUR minus ten to minus 12 million.
Profit: profitability maintained at high level
TAKKT profit increased by 24.0 percent in 2006 to around EUR 62 million. The margin remained unchanged at 6.5 percent. The fact that TAKKT is reporting a margin which is unchanged from the previous year is also attributable to the positive development of the tax rate: it fell from 36.0 percent in 2005 to 32.7 percent in the year under review. This can be attributed to reversals of allowances of deferred tax on loss carry-forwards from the past years. Another reason is that tax rates in various European countries are lower than in Germany and North America and that the contribution to the Group's pre-tax profit by KAISER + KRAFT EUROPA without Germany has increased against 2005.
Cash flow: new record value proves profitability
As you can see here we have reached a new cash flow record: last year it was EUR 81.7 million. This figure reflects our high profitability. The fact that the 8.5 percent margin is at the same high level as in the previous year shows that TAKKT is growing profitably – on the one hand by expanding existing business and on the other hand by acquisition.
Employees: increase mainly due to NBF acquisition
Ladies and Gentlemen
The good figures I can present today are especially due to the work of all TAKKT staff members. Each and every one of them makes a critical contribution to the overall success of the Group. I would also like to take this opportunity to thank all staff members for their work.
Our dynamic growth of the last year is also reflected in our headcount, which increased to more than 2,000 full-time equivalent staff members for the first time in the history of TAKKT. Due to the NBF acquisition the number of staff members increased by 122 full-time equivalent employees. The remaining 46 colleagues were employed as a result of our organic growth.
Consolidated balance sheet: increased total assets due to NBF acquisition
I would now like to briefly explain our consolidated balance sheet. Let me start by saying that our balance sheet structure continues to be extremely sound.
As a result of the acquisition of NBF Group at the beginning of the year under review goodwill, other assets and debts increased. Thanks to our strong internal financing capability the balance sheet structure at the end of the year even improved slightly compared to 2005.
On the reporting date, 31 December 2006, the Group had total assets of EUR 573.7 million. Its non-current assets were EUR 352.6 million. Goodwill continued to be the largest item in non-current assets with EUR 250.4 million. The application of IFRS 3 since 2005 stipulates that goodwill is no longer amortised, but that an impairment test is undertaken every year. As there were no reasons, TAKKT did not undertake any impairment on goodwill in 2006. Therefore changes in this position of EUR 35.4 million can be attributed to the NBF acquisition and EUR minus 12.5 million to currency fluctuations.
Inventory levels increased slightly in currency-adjusted terms due to increased business volumes and higher stock levels to improve delivery service. The NBF acquisition did not impact this item as NBF does not operate its own warehouses.
Current receivables and assets and especially trade receivables therein increased. In addition to the NBF acquisition, increased organic business volume contributed to this increase. Customers’ payment behaviour remained generally stable. However, the average collection period increased from 40 to 42 days as a result of several larger orders.
Consolidated balance sheet: strengthened equity ratio of 47.7 percent
On the equity and liabilities side, our shareholders' equity has increased considerably thanks to our good profits. The equity ratio excluding minorities increased from 46.1 to 47.7 percent.
The Group's net borrowings amounted to EUR 164.8 million at the end of the year compared to EURO 156.5 million in the previous year. The weaker US dollar resulted in a devaluation of borrowings compared to the previous year by EUR 8.8 million. At the beginning of the financial year borrowings increased as expected as a result of the NBF acquisition. Net repayments totalling EUR 52.9 million were made out of cash flow in 2006.
Ladies and Gentlemen
With that I would like to close the overview of the sound financial situation of the Group and now highlight how our three divisions developed.
KAISER + KRAFT EUROPA: main contributor to turnover with high profitability
Let me start with KAISER + KRAFT EUROPA. The largest division in TAKKT Group increased its turnover by 12.5 percent and generated the highest turnover in the Group with EUR 451.2 million. This growth was driven equally by increased order numbers and higher average order values.
We are pleased that nearly all subsidiaries contributed to this success. Very positively the companies in Scandinavia, Southern and Eastern Europe, Benelux, Switzerland and Germany developed, which all reported double-digit growth in 2006.
The profitability of the division, already at a high level, increased once again – despite start-up costs for extensive projects to found new companies in the two last years in Turkey, Romania, China and France. EBITDA increased by 20.6 percent to EUR 84.9 million. The margin also rose further: after 17.5 percent in 2005 it came in at 18.8 percent in the year under review. This can be attributed firstly to improved purchasing terms, secondly to better capacity utilisation and thirdly to the improved efficiency of catalogues and mailings. The latter is a result of the newly designed KAISER + KRAFT combined catalogue.
Topdeq: repositioning shows results
The Topdeq division continues to be on the growth track. The strategy to reposition Topdeq as a premium brand is successful: turnover was up by 4.9 percent in currency-adjusted terms.
Let me just outline here what repositioning actually means. Since the end of 2005 Topdeq has been focussing on high-quality, design and functionality-driven equipment. This means in part that less profitable customer groups are no longer being addressed. Ultimately, the objective is to more than compensate accepted lower order numbers with higher average order values.
Repositioning also has a positive impact on profitability: the EBITDA margin increased from 3.4 to 5.0 percent. This was mainly driven by three factors: firstly, thanks to higher product and service quality the returns ratio dropped at all national companies. Secondly, Topdeq achieved better margins in purchasing. Thirdly, capacity utilisation was higher.
All in all Topdeq was able to increase its operative results by more than 50 percent. Our objective is to stick firmly to this profitability improvement track.
K + K America: strong increase - also due to NBF acquisition
Let's now come to our third division: K + K America. It has increased its turnover considerably in 2006 on US dollar basis by around 47 percent to USD 528.8 million. Translated into the reporting currency of euros this amounted to EUR 421.5 million. This was of course due to the acquisition of NBF, which accounted for a turnover of around USD 135 million in the year under review.
At the same time the K + K America Group also saw organic growth on US dollar basis of 8.6 percent. This growth was mainly attributable to higher average order values at all companies. Among other things order values were positively influenced by consolidating NBF Group as well as thanks to some larger orders.
The first-time consolidation of NBF Group impacted the earnings figures of K + K America. EBITDA in 2006 increased by about 20 percent to EUR 39.3 million. As expected, the EBITDA margin dropped from 11.3 to 9.3 percent. As mentioned previously, NBF is currently generating margins which are below the average of K + K America. Excluding NBF Group, the EBITDA margin would have reached 10.2 percent.
This drop can mainly be attributed to start-up costs for the new joint IT platform in the division. These expenses relate to training and consulting. In order to ensure continuingly high levels of customer service staff worked overtime. In addition, the company hired new staff during the implementation phase. Altogether the IT transition brought and is bringing about the expected start-up problems, on which solutions is currently being worked. We are convinced that the positive effects from the new platform will be reflected in the division's figures for the first time in 2008.
Key figures per share: clearly increased earnings and dividend
Ladies and Gentlemen
The good growth rates of the Group have also influenced the key figures per share: earnings and cash flow per share increased. Cash flow per share topped EUR 1 for the first time at EUR 1.12.
As a result of the good figures the dividend is also to increase. The Management and Supervisory Boards will propose increasing the dividend by 67 percent to 25 cents per share at the next Annual General Meeting. This puts the payout ratio at around 30 percent. The Management Board believes that shareholders are therefore participating in the success of TAKKT appropriately and that there continues to be a sound basis for further growth.
TAKKT share: another good year for investors
I would like to close by informing you about the development of the TAKKT share. As you know the dividend is only a part of the shareholder return. The other component is the increase in the share price. As the chart shows, the TAKKT share developed better than the SDAX index. Between 1 January and 31 December 2006 the share increased by 37.0 percent, while the index saw an increase of 29.9 percent.
The total number of shares remained stable at 72.9 million. At 31 December 2006 this amounted to a market capitalisation of about EUR 959 million. The shareholder structure also remains unchanged. Franz Haniel & Cie. GmbH continues to hold 72.7 percent of shares. The remaining 27.3 percent are broadly spread among institutional and private investors.
TAKKT proactively communicates with all capital market players. We inform shareholders, potential investors, banks, financial analysts and the press about the latest business developments quickly and at the same time. The Group continues to present itself in key global financial centres. In 2006, road shows took place in Frankfurt, Edinburgh and Zurich, while London and Paris were visited twice. In addition Milan and Brussels were visited for the first time to establish regional contacts. We also attend large capital market conferences to address potential investors. Let me give you two examples: TAKKT attended the Cheuvreux German Corporate Conference in January 2006 and the Dresdner Bank German Midcap Day in New York. This was to intensify contacts to potential investors in North America.
Our efforts have paid off. As Mr Gayer mentioned at the beginning, TAKKT was presented with the reputed Investor Relation Prize for the second time in 2006, which is awarded by the German business magazine “Capital” and commends the Group’s clear and transparent financial communications. As in 2005, TAKKT came in third among SDAX companies. In the overall ranking of all 196 German and European companies from the EUROSTOXX 50, DAX, MDAX, TecDAX and SDAX, TAKKT is now even among the top ten.
Ladies and Gentlemen
I would like to end the presentation of the TAKKT Group figures for the year 2006 on this positive note. Georg Gayer will now inform you about the “Outlook 2007”. Thank you very much for your attention.
