Speech of Georg Gayer
CEO of TAKKT AG
Only the spoken word applies.
Ladies and Gentlemen
Welcome to the 2006 financial statements press conference of TAKKT AG. Our CFO Dr Funck and I would like to inform you about the development of the business of TAKKT AG last year.
As in the past we have divided our press conference into three parts: to start with I will present the most important developments and highlights of last year as seen by TAKKT. Then Dr Funck will present the figures of TAKKT Group. Thirdly I will then inform you about our forecast for the financial year 2007. After that we will be happy to answer your questions.
Anybody attending last year’s financial statements press conference will have noticed that there have been changes in the Management Board. To enhance the expertise in the Management Board we decided to expand it. After Alfred Milanello retired last July, two new Board Members were appointed: our Belgian colleague Didier Nulens from Topdeq and our US American colleague Thomas Loos from K + K America. This means that all divisions are represented on the Management Board and that this reflects the international orientation of the Group. Both colleagues have long-standing experience in TAKKT Group and were responsible for the Topdeq and K + K America divisions before their appointment to the board.
TAKKT 2006: continues on growth track
Ladies and Gentlemen
Record turnover, high profitability, internationalisation – these are the three terms which describe the year 2006 from the point of view of TAKKT AG. The Group continued to grow profitably – thanks to growth in established companies as well as young companies and the NBF acquisition. The TAKKT team worked so successfully that the Management Board increased its turnover forecast twice: in August 2006 from 18 to 20 percent and in November by three more percentage points. In the end we reached a currency-adjusted increase in turnover of 24.4 percent.
Excluding the turnover figures of National Business Furniture Group - NBF in short - which was acquired at the beginning of 2006, currency-adjusted growth reached double-digits with 10.1 percent. Comparing this 10 percent with the growth rates of the economies in which we are operating one thing is clear: TAKKT is growing better than the overall market and in 2006 has therefore gained market share.
This growth however by no means came at the price of profitability: the operative margin of TAKKT in 2006 was again above our EBITDA target corridor of ten to twelve percent.
The development of cash flow is also extremely positive: already at a high level it has improved further and reached a new record figure.
The balance sheet structure is extremely sound and improved slightly against the previous year – despite the acquisition at the beginning of the year under review. This shows that the subsequent financial burden could almost be compensated in one year.
TAKKT 2006: highlights
What were the highlights in 2006 from our point of view? Let me start by looking back on KAISER + KRAFT EUROPA. Our largest division redesigned the KAISER + KRAFT combined catalogue in the year under review. We can already say that this measure has had a positive impact: KAISER + KRAFT EUROPA was able to increase the effectiveness of its catalogues and mailings.
The division also continued to drive internationalisation. An example of this is the start of Gaerner in France. The results of the first months exceeded our expectations.
Another highlight was dispatching the first KAISER + KRAFT catalogues in China. The results as far as order entry and repeat orders are concerned were far above expectations. Therefore the division is going to follow the TAKKT Asia strategy and successively increase the number of pages and the circulation of its catalogues.
China bears a lot of potential for us – not only as a large sales market. We also intend to use Asian procurement sources for Europe, under the condition that quality and service locally meet the high standards of KAISER + KRAFT EUROPA.
Let’s move on to the Topdeq division. Our specialist for designer office furniture and accessories completed the trend reversal in the year under review and increased turnover by around five percent. This can be mainly attributed to repositioning the brand as a premium brand at the end of 2005. Since then Topdeq has been focussing even more on high-quality, design and functionality-driven equipment.
At the beginning of September Topdeq started operative business in Austria and mailed its first catalogue. After slight start-up problems the company is now developing very satisfactorily.
In 2006, the highlight in the division K + K America was without a doubt the acquisition of NBF Group. Integrating the American market leader for B2B office equipment mail order is going to plan. I am especially impressed how quickly TAKKT and NBF staff have turned into a team. All jointly developed measures are being swiftly implemented and already showing the first successes.
In order to ensure that our shareholders participate in our success appropriately the Management and Supervisory Boards will propose increasing the dividend by around 67 percent to 25 cent per share at the next Annual General Meeting. The distribution rate is around 30 percent. This means that despite the considerable dividend increase of 67 percent TAKKT AG has enough capital to finance further growth.
I think that this is going to please our shareholders as much as the fact that also in 2006 we informed them quickly and professionally about the latest developments. Investor relations activities at TAKKT are driven by the following principle: openness is the basis of good financial communication. Therefore transparency and reliability play an important role. We were awarded for our investor relations activities last year: as in the year before TAKKT came in third in the SDAX segment in the renowned Investor Relations Award which is presented by the German business magazine “Capital”.
Ladies and Gentlemen
The successes described are not the result of the efforts of a single person, but the efforts of all staff members. In the name of the whole Management Board I would like to express my appreciation and thanks to them. It is the work of all employees which enables TAKKT to enhance its market leadership.
TAKKT 2006: Corporate Social Responsibility
We are dedicated to continually enhancing our market position. But despite these efforts we do not forget to deliver on our social responsibility. As far as we are concerned commercial success and social responsibility are interlinked. We are therefore committed to socially and ecologically responsible corporate management and understand Corporate Social Responsibility as a component of our corporate culture.
In 2006, TAKKT defined groupwide activities which it aims to support. The objective is to fund projects which train and educate children and youths while also creating jobs. Thanks to a common focus, activities within TAKKT Group can be coordinated with each other more easily and ensure that our help is therefore more effective.
This is documented by numerous local initiatives in individual companies within TAKKT Group. For example: catalogue returns in Germany are only processed by disabled workshops.
In addition to that TAKKT supports a range of international projects in regions which are especially in need of aid. We initially concentrated our efforts on Mumbai – better known under its former name Bombay. The Indian metropolis is twinned with Stuttgart, which is the location of the TAKKT AG headquarters.
In 2006, TAKKT among other things enabled two aid organisations to set up computer training centres. Physically handicapped people and street children are trained in the use of computers so they will be able to make a living in the future. The Group also funded a training centre for orphans and street children. With our support machines and tools were purchased which could be used to train youths to become mechanics or tailors.
Furthermore TAKKT supported the child aid organisation Prem Dan financially so it could equip an orphanage. There are also plans to support a project spanning a number of years which is being set-up by this organisation.
Ladies and Gentlemen
Let me finish with the highlights of the year under review here. Thank you for your attention and let me now hand over to Dr Funck.
Outlook: strategic agenda
Ladies and Gentlemen
As you have seen TAKKT was able to achieve record figures in many different areas. We are optimistic that we are going to be able to increase turnover organically and raise profitability. We are not going to get support from the economy in all regions. But more on that later.
Beforehand I would like to give you a general overview of our strategic agenda. Starting with growth targets.
In the last 20 years TAKKT increased its turnover by an average of twelve percent annually. On average half by acquisition and half by organic growth. Our objective is to continue this growth trend in the medium and long-term. We are convinced that we will continue to be successful.
In the future TAKKT will continue to expand into new markets. Our objective is to found or acquire at least one new company a year.
Let me just say something on the subject of takeovers and newly founded companies: at first glance acquisitions may seem to be a comparatively easy way to create growth, because we are saving ourselves the start-up work. But the critical task is integrating companies which have been taken over into the Group successfully. According to statistics about 50 percent of takeovers turn out as failures.
Integration requires tact, assertiveness and a first-rate understanding of the target as well as your own group.
From what we can say at this point it looks as if we have achieved this at NBF. Founding new companies does not include the risks, but it takes longer, until success is visible. TAKKT believes both approaches to be equal.
We are also optimistic as far as our profitability targets are concerned. This can also be seen in the fact that we have decided to increase the long-term target corridor for our EBITDA margin. Until now this was at 10 to 12 percent. From this year the benchmark is 11 to 13 percent. For 2007 we are aiming at a value at the upper end of this new target corridor.
In addition to that we are planning for the division Topdeq and the company NBF to reach double-digit EBITDA margins by 2010 at the latest. In both cases we are on track. The EBITDA of NBF increased in the first year from just under five to around seven percent. And at Topdeq the trend has been reversed with its repositioning as a premium brand. The EBITDA margin increased by 1.6 percentage points to 5.0 percent.
Outlook: basic economic conditions
Ladies and Gentlemen
TAKKT is doing everything to continue to grow dynamically. But we are of course also to a degree dependent on the development of the economy. I would therefore like to present our economic forecast for the years 2007 and 2008.
It is important to note that the absolute economic growth rates are of significance for our business. However, the growth trend is even more important, i.e. if GDP growth rates were above or below the figures of the previous year.
As already indicated earlier we are not expecting any economic impulse for our business this year – this applies especially to North America.
Economic experts are forecasting that the economy in Europe is going to lose momentum in 2007 and grow by only two percent. Experts are inconclusive when it comes to the development in Germany. Forecasts range between 1.6 and 2.5 percent. In 2006 GDP increased by 2.7 percent. The decrease is said to be due to increasing interest rates, the rise in value added tax and a stronger euro. I personally can however imagine that at the end of the year the situation is going to be better than the majority of experts are forecasting today.
Economic risks to our business are to be seen especially in North America: experts are expecting an increase of 2.2 percent. Compared to 2006 this is a decrease of 1.3 percentage points. These assumptions are very much driven by the interest rate level reached and risks on the real estate market.
TAKKT is however assuming that a slight economic upward trend is possible in 2008.
Outlook: important individual projects
Ladies and Gentlemen
We would be ill advised if we only set short-term targets for the current year. In actual fact we are planning ahead some years as every company does which is successful in the long-term. Let me therefore just briefly explain some key individual projects until 2010.
As you may be aware, KAISER + KRAFT EUROPA operates a profitable production location in Germany.
In Haan near Düsseldorf about 100 employees manufacture transport equipment under the “EUROKRAFT” label. As a result of the general development and new products, capacities have to be increased. We are using this increase to purchase new plant and to further improve business processes. The investment volume is around EUR 8 million.
Another large-scale project is expanding the logistics infrastructure at KAISER + KRAFT EUROPA. We are already using a large part of our investment volume this year to improve logistics structures and adjust warehouse capacities to increasing business volumes. More than EUR 40 million are being invested in purchasing the mail order centre in Pfungstadt which until now was being leased as well as expanding it to a European logistics centre for business equipment.
The objective is to increase the share of the stock shipment business of KAISER + KRAFT EUROPA from 50 to 60 percent in the medium-term with the additional capacity. This means that the division can on the one hand guarantee faster and more reliable delivery services, while better purchasing conditions can be realised on the other. Based on the experience of TAKKT these are greater than additional warehouse costs.
The third individual project is expanding the warehouse infrastructure at Topdeq in the USA. Thanks to two additional warehouses in Atlanta and Reno customers will be supplied in two days at the maximum, wherever they are.
And finally we are also going to expand the warehouse capacities of Hubert in the USA and Gerdmans in Sweden. Increased business volumes make increasing capacity necessary to continue to guarantee optimal delivery services to customers.
All in all we are going to invest around EUR 50 million in our warehouse infrastructure.
Outlook 2007: growth initiatives
Moderate forecasts for the economy are by no means influencing our concrete growth initiatives for 2007. These are:
Firstly: all divisions are consistently working on adjusting their product ranges and services to customer needs and market requirements. We aim to build on our existing strengths and eradicate weaknesses.
Secondly: in May KAISER + KRAFT is starting a company in Slovakia. As KWESTO is already operating in Slovakia the proven two-brand strategy is being implemented there. The Slovak KAISER + KRAFT company can benefit from the experience of KWESTO.
Thirdly: TAKKT is preparing to rollout the Hubert business in Europe. With its range of equipment for retailers and catering Hubert has as yet only been operating in the USA and Canada. In line with our tried and tested growth strategy we also intend to duplicate this successful business in other regions. On the basis of a market study which has been completed, 2007 is going to be dedicated to compiling the catalogue.
Fourthly: in 2007 TAKKT will strengthen the position of the companies founded in 2005 and 2006, such as KAISER + KRAFT China or Topdeq in Belgium and Austria.
Outlook 2007: TAKKT key figures
Ladies and Gentlemen
I have explained what economic developments we are expecting in 2007 and which measures we are going to take to secure further growth. The question is: How are both going to impact the figures of TAKKT Group?
All in all the Management Board is cautiously optimistic for 2007. Cautious because the business development of the Group is affected by the cooling economy and optimistic because the Group will continue to fully exploit the potential of the B2B mail order business.
Based on our plans turnover and profit will continue to increase in 2007. Two divisions are going to contribute to this in particular: KAISER + KRAFT EUROPA and the Topdeq Group.
Turnover is to increase organically in currency-adjusted terms by at least four percent. With this forecast we are sticking to our target growth of at least one or two percentage points more than the economies in which we are operating.
TAKKT has good cost management tools at its command. The Group is therefore able to achieve an EBITDA margin within the raised target corridor of 11 to 13 percent, despite weaker economic growth. For 2007 we are expecting a margin in the upper half of the target corridor.
As a result of the positive business development in the past years extensive expansion investment is planned at different locations in 2007. The investment volume is therefore going to increase to about 6 percent of Group turnover and will therefore be above the long-term average of one to two percent. As already mentioned we are investing especially in optimising logistics structures and adjusting warehouse capacities. In 2008 we are assuming the investment volume to normalise.
Our business model, a relatively good economic environment in Europe and our internal measures will guarantee that also the years 2007 and 2008 will be successful years.
Ladies and Gentlemen, thank you for your attention. We would now like to answer your questions.
