Speech of Dr Florian Funck
CFO of TAKKT AG
Only the spoken word applies.
Ladies and gentlemen
I would also like to express my warm welcome to this year’s financial statements press conference of TAKKT AG. It has almost become a tradition that, once again, we are able to report very positive developments in the last financial year. Mr Gayer has already described how our strategy of international diversification is working and that TAKKT could more than compensate for the weaker North American business in 2007 with its stronger European business. I would like to show this in more detail by taking you through the most important key figures in the Group’s financial statements.
Turnover: strong organic growth of 9.2 percent
The turnover of TAKKT Group reached a record level in 2007 – despite the weakness of the US economy and the US dollar. At EUR 986.2 million, the Group increased its turnover by 2.9 percent over the previous year. Adjusted for currency fluctuations as well as the turnover of the US company Conney Safety Products LLC (Conney) which was sold with effect from 30 September 2007, the increase was as much as 9.2 percent. All of TAKKT’s value and growth drivers contributed to this overall very encouraging turnover growth. In the past year, TAKKT was again able to expand its customer base – the companies in Europe in particular gained new customers. The number of orders increased. And in all three divisions average order values also rose.
This substantial organic growth of over nine percent proves once again the power of the TAKKT business model to deliver growth and growth opportunities. Around one percentage point of our organic growth can be attributed to companies that started up in the years 2005 to 2007.
Turnover: diversification as basis of success
Ladies and gentlemen
The fact that TAKKT was able to produce such a good result despite the weakness of the US economy is mainly due to our strategy of international diversification.
In 2007, the division with the highest turnover was again KAISER + KRAFT EUROPA. Its share of total Group turnover rose by 5.6 percentage points to 52.7 percent. Topdeq also developed very positively and contributed 9.2 percent to Group turnover. This represents an increase of 0.3 percentage points over 2006. K + K America generated 38.1 percent of the turnover of TAKKT Group in 2007. This is a decline by 5.9 percentage points below the previous year’s figures. There are three reasons for this fall: firstly the K + K America division showed below average growth due to the difficult economic situation in North America. Secondly the weak US dollar reduced the figures when converted into our reporting currency of euro. And thirdly, turnover was below the previous year’s figure on account of the sale of our US subsidiary Conney.
These three effects are also reflected in the regional distribution of turnover shown on the right-hand side of the chart. The North America region’s share of turnover fell from 45.6 to 39.5 percent. By contrast the shares of Germany and the rest of Europe increased. In 2007, the TAKKT companies in Germany generated 23.1 percent and the rest of Europe 36.8 percent of Group turnover. China, Japan and Mexico, which are summarised in this chart under “others”, together contributed 0.6 percent of Group turnover. But this relatively small figure should not blind us to the fact that these regions grew very dynamically, by some 50 percent, in the past year.
In order to continuously improve customer service, we also analyse which information and ordering methods our customers prefer. So we break down our total turnover into orders received by telephone, fax or online. In 2007, this breakdown shows a clear trend: e-business is continuing to grow in importance at TAKKT. In the last financial year, online orders in all three divisions rose disproportionately by around 20 percent to EUR 127.4 million and thus reached 12.9 percent of Group turnover. Or to put it another way, every eighth order now reaches the TAKKT companies online.
Gross profit: margin in all divisions further optimised
But returning now to our Group figures, I have already pointed out that TAKKT Group’s turnover showed significant organic growth. But what is about the profitability of this growth? The short answer to this question is: very good, as shown for example by the development of gross profit – a key parameter for a mail order business such as ours. TAKKT’s gross profit shows how much of our turnover remains after deducting material and transport costs. This figure has increased – and even more strongly than turnover. Or to put it another way, we were able to achieve further growth in our gross profit margin, from 40.6 percent in 2006 to 41.3 percent in 2007. This positive development is the result, on the one hand, of optimised product offers, more favourable purchasing conditions and improved service in all three divisions. On the other hand a structural effect has also contributed to the increase, in that our highest-margin divisions, KAISER + KRAFT EUROPA and Topdeq, grew more strongly than the Group average. Rising oil, freight and production costs had little influence on the gross profit margin because the Group is able to respond to such developments at short notice.
The long-term development of gross profit margins in the Group, as well as the development of margins in North America in the year under review, prove that TAKKT generates high margins independently of economic conditions.
EBITDA: margin above the existing target corridor of 11 to 13 percent
Let us now turn to EBITDA, earnings before interest, tax, depreciation and amortisation, which TAKKT uses as a central parameter for measuring its operating profitability. EBITDA improved significantly from EUR 119.5 million to a new record level of EUR 142.3 million. That is a rise of 19.1 percent. This increase is especially the result of the outstanding development of our KAISER + KRAFT EUROPA division.
TAKKT Group’s EBITDA margin, at 14.4 percent, reached a figure above management’s existing target corridor of 11 to 13 percent. And it should be noted that all three divisions were able to improve their margins over the previous year.
In addition to the improved gross profit margin, the growth in profitability can be attributed to the better capacity utilisation of our mail order infrastructure in Europe together with a slight improvement in advertising efficiency.
Therefore, it will not be a surprise for you that we increase our target corridor from 2008 onwards substantially to a 12 to 15 percent EBITDA-margin. More about this from Mr Gayer when talking about our outlook.
Profit before tax: substantial increase
As you can see from this chart, profit before tax in 2007 rose disproportionately by 25.0 percent to EUR 116.1 million. As well as the improved operating profitability, a further contributor to this was the lower interest costs resulting from the Group’s substantial reduction in net borrowings. Depreciation, by contrast, rose slightly over the previous year. This was mainly due to TAKKT’s greater investment activity in 2007. The profit margin reached a double-digit figure with 11.8 (9.7) percent.
Profit: profitability further improved on already high level
TAKKT Group’s profit for the period under review rose by almost 27 percent to about EUR 79 million. The margin rose from 6.5 percent in 2006 to 8.0 percent in the year under review. One contributor to this was a slight fall in the tax ratio, which fell by one percentage point from 32.7 percent to 31.7 percent. The principal reason for the lower tax ratio is the tax reform that was passed in Germany. Although the reduced tax rates only come into effect from 2008, from the moment they were passed in the Bundesrat – i.e. with effect from July 2007 – they were already applied to the valuation of deferred tax provisions in the accounts. The revaluation of deferred tax provisions especially on goodwill in Germany with a lower tax rate ultimately resulted in deferred tax income and thus to the reduced tax ratio. A further positive effect has come from the fact that a larger share of profit was generated in Europe, where tax rates are significantly below North American levels.
Cash flow: over EUR 100 million for the first time
Ladies and gentlemen
In 2007, TAKKT’s cash flow reached a three-digit figure for the first time at EUR 101.2 million. Compared to the previous year, this is an increase of almost 24 percent. This again underlines our high profitability. The margin rose to 10.3 percent of Group turnover. This again is 1.8 percentage points higher than in 2006 and makes one thing very clear: TAKKT’s growth is profitable and this not only in the year 2007 as the chart shows.
Employees: basis for sustained success of the Group
The pleasing record figures that I have been able to present are thanks above all to the efforts of TAKKT’s staff. Day by day, their commitment to the Group contributes to TAKKT’s success. Therefore I would like to take this opportunity to thank all our staff most sincerely for their performance.
As a result of the Conney sale the number of staff fell slightly in comparison to the previous year. Adjusted for Conney, however, our three divisions increased their staff numbers. Due to rising productivity at KAISER + KRAFT EUROPA and Topdeq, the increase in staff in both divisions was below the growth in the volume of business. KAISER + KRAFT EUROPA employed 949 staff at the end of 2007, Topdeq 206. K + K America expanded its staff base in order to be able to guarantee high quality of service during the process of conversion to a new IT platform. Here, 787 staff were employed on 31 December 2007. 29 staff worked for the holding company. In total, TAKKT Group employed 1,971 staff at the end of 2007.
Group balance sheet: Conney sale leads to shortened total assets
Now I would like to take you through the Group balance sheet of TAKKT AG, which again this year deserves the title of “extremely solid”. The fact that there is a decrease in total assets in comparison to the previous year is mainly attributed to the sale of Conney.
Let me now come to the individual items – and I will start with the asset side. On the balance sheet date, 31 December 2007, total assets amounted to EUR 549.0 million. Non-current assets came to EUR 333.4 million. Goodwill represented the largest share with EUR 211.6 million. Under IFRS 3 accounting standard goodwill is since 2005 no longer amortised on a regular basis but is subject to an annual impairment test. As in past years, TAKKT had no need for any extraordinary impairment on goodwill in 2007. Thus the reduction in goodwill is entirely a consequence of the sale of Conney as well as changes in exchange rates.
On the other hand, under non-current assets property, plant and equipment item has increased. This was the consequence of extensive activities in expanding our mail order infrastructure. The object of these measures is to bring our warehouse capacities into line with the increased volume of business, create new possibilities for international purchasing and further expand the number of products available for delivery to customers directly from stock. The largest single project in 2007 was the purchase of the Topdeq mail order centre in Pfungstadt, which had previously been rented, and its expansion into a cross-divisional mail order centre. In future the sales companies of the KAISER + KRAFT EUROPA and Topdeq divisions will be supplied with office equipment from Pfungstadt.
Current assets showed almost no change compared to the previous year. The reductions in trade receivables and inventories associated with the Conney sale were largely compensated by increases resulting from the Group’s organic growth.
Customers’ payment behaviour remained largely stable. The average collection period on customer accounts improved from 41 to 39 days.
Group balance sheet: clear debt relief, shareholders' equity ratio at 58.6 percent
On the equity and liabilities side, shareholders’ equity has increased significantly due to the high profit in the period under review. Borrowings, the second major item on the liabilities side, fell from EUR 168.7 to 91.3 million on the reporting date. The Conney sale contributed some EUR 34 million to this substantial reduction in net borrowings. The weaker US dollar also led to a reduction in borrowings amounting to EUR 13.4 million. However, a large contribution to the fall in borrowings came from the Group’s operating cash flow. This reduced borrowings by around EUR 30 million.
At this point one can conclude that the TAKKT balance sheet still offers much scope for the Group’s further growth – but also possibilities for raising dividends. I will return to this aspect later.
KAISER + KRAFT EUROPA: main turnover generator with high profitability
Ladies and gentlemen
Having given you an overview of the financial situation of the Group, I will now turn to the individual results of our three divisions.
I will start with our highest-turnover division, KAISER + KRAFT EUROPA. In the year under review, its turnover grew by 15.2 percent to EUR 519.8 million. This strong growth was of course assisted by the overall positive economic mood in Europe. But the figures also show that the division grew significantly more strongly than the European economies, and thus further strengthened its market position. Two-thirds of the growth in turnover came from an increase in the number of orders, and one-third from higher average order values. Almost all of the division’s subsidiary companies contributed to this result with double-digit growth rates – including in particular the German sales companies.
Three factors above all have contributed to the repeated improvement in the profitability of KAISER + KRAFT EUROPA: firstly the gross profit margin which increased again, secondly the improved capacity utilisation of the mail order infrastructure and thirdly higher advertising efficiency. Despite the start-up costs for the newly-established and young companies in China, France, Romania, Turkey and Slovakia, EBITDA rose by 27.7 percent in the year under review to EUR 108.4 million. The margin improved from 18.8 to 20.9 percent.
Topdeq: repositioning shows further results
In the year under review, Topdeq also performed well with significant growth. Our design specialist profited from the economic upswing in Europe and from its successful repositioning as a premium brand. Adjusted for currency changes, turnover rose by 8.5 percent to EUR 91.2 million. All companies contributed to this pleasing result. The company in Austria, founded in the previous year, significantly exceeded expectations.
The growth in the division’s turnover was driven, as in the previous year, by higher average order values. This was the logical consequence of the focusing on high-value, design-driven equipment under the repositioning strategy.
Especially the graph on the right underlines the success of our repositioning strategy. With the elimination of less-profitable customer groups, the division’s profit also rose to an EBITDA of EUR 7.0 million. The EBITDA margin reached 7.6 percent and was thus 2.6 percentage points above the 2006 level. Other reasons for this increase were the further optimisation of processes and the higher gross profit margin. Topdeq has thus taken a major step towards the goal of a double-digit EBITDA margin in 2010.
K + K America in USD: organic growth despite weak economy
Our third division had a difficult time in 2007 on account of the weakness of the North American economy. Due to the Conney sale, turnover fell by 3.1 percent to USD 513.6 million. But excluding the turnover of the subsidiary Conney, sold during the year, turnover in US dollar rose by 2.0 percent. This figure shows that our strategy of diversification in North America is paying off, because not all groups within the division were able to contribute equally to this growth. The companies C&H in the USA and Avenue in Canada, whose business is closer to the manufacturing industry, felt the effects of the economic slow-down in North America and recorded falls in turnover. By contrast Hubert and the NBF Group, serving mainly customers in the service sector, bucked the economic trend and achieved pleasing growth in turnover.
As Mr Gayer has already mentioned, the sale of Conney took place at the end of the third quarter in the course of our consistent concentration on our core business. Conney’s sale price amounted to USD 48 million or EUR 34 million. The sale produced a profit of EUR 1.4 million. And I would like to make quite clear: following this step, our portfolio does not contain any further sale candidates.
K + K America: weak US dollar impacts euro figures
Converted into the reporting currency of euro, the turnover of the K + K America division fell to EUR 375.6 million. This fall was naturally caused mainly by the US dollar, whose average exchange rate in 2007 has weakened by 9 percent from the previous year.
Consequently the EBITDA of K + K America, converted into euro, also fell to EUR 36.1 million. But the EBITDA margin, at 9.6 percent, was above the previous year’s level. This improvement was largely the result of the division’s higher gross profit margin, which more than compensated for extra expenditure in connection with the introduction of a new IT platform. But the profit from the Conney sale also contributed to this. Adjusted for Conney, the division’s EBITDA margin would have been 9.5 percent.
Key figures per share: clear increase in cash flow, earnings and dividend
Ladies and gentlemen
The Group’s pleasing results in the year under review also had an impact on the key figures per share. For example, cash flow and profit rose substantially. Cash flow per share amounted to EUR 1.39 and earnings per share being over 1 euro for the first time with EUR 1.07.
The Management and Supervisory Boards also wish the shareholders to participate in this positive development through a higher dividend. The total dividend amounts to 80 cent per share, meaning that the dividend has more than tripled in comparison to the previous year and the payout ratio based on profit attributable to TAKKT shareholders for the period under review has risen to around 75 percent.
TAKKT Group’s extremely strong balance sheet and stable business model will also make it possible for shareholders to participate fairly in the company’s profits and cash flow in the future. To state the case clearly: for as long as the Group has no need to finance any further large-scale value-creating acquisitions or other investments, further special dividends can be envisaged in the coming years.
TAKKT share: share price development does not reflect operational performance
In conclusion I would like to inform you about the development of the TAKKT share price. As you can see from this chart, this time the TAKKT share has developed in line with the market. Between 1 January and 31 December 2007 the share price fell by 9.5 percent. We, the Management Board, are naturally not satisfied with this development, given that the trend in the share price is clearly out of line with the development of the operational business.
But looking at 2008 I am optimistic for two reasons: Firstly because the TAKKT business model can generate stable or rising profitabilities independently from economic conditions. And secondly because an investment into the TAKKT share has become even more attractive with a view to our dividend strategy.
The total number of shares remained unchanged at 72.9 million. Market capitalisation at the end of year totalled some EUR 868 million. The shareholder structure is also largely unchanged: Franz Haniel & Cie. GmbH continues to hold 72.7 percent of the shares. The remaining 27.3 percent are in the hands of institutional and private investors.
For TAKKT it goes without saying that all players in the capital market should be informed quickly and fully about all business developments. The Group also maintains contact with its investors and presents itself regularly at the major international financial centres. In 2007 we again increased our involvement in this area. Our aim is to increase the number of investors and create a broad interest for the TAKKT share.
Ladies and gentlemen
I will now conclude my presentation of the figures of TAKKT AG. 2007 was marked by dynamic growth in Europe and focusing in North America. Now, in his outlook, Mr Gayer will tell us what awaits you and us in 2008. Thank you for your attention.
