Düsseldorf, 28 June 2007 - "The Werhahn Group grew internally and externally last fiscal year. One big growth factor was our purchase of a building materials division from the Berlin-based Dr. Schmidt Group," explained Anton Werhahn, Chairman of the Managing Board at today's annual press conference in Düsseldorf.
"Acquisitions drove up the Werhahn Group's consolidated net sales by 20 % in 2005. The most important acquisitions included the Dr. Schmidt transaction, the Zwilling division's purchase of an 80 % stake in Tweezerman India in Pondicherry, and the Shopfitting division's takeover of the British GWS Group. The Aggregates, Zwilling and ABC divisions were the main drivers of organic growth."
While the global economy experienced stable growth in 2005, propped up by the U.S. and China, the euro zone lagged behind. Once again, exports drove the German economy while domestic demand stagnated.
Peter Vos, the Managing Board member in charge of the Aggregates division, noted that Basalt AG had substantially expanded its aggregates and asphalt activities by purchasing the Dr. Schmidt Group's building materials arm. He added that since the German construction sector had forecast a recovery in the industry, there was a good chance that net sales and income would improve in 2006. The main assets acquired in the Dr. Schmidt transaction are Norddeutsche Mischwerke and Norddeutsche Naturstein. These companies have a combined workforce of 1,200 employees and generated EUR 300 million in net sales in 2004.
CFO Dr. Michael Werhahn reported that the Werhahn Group's consolidated net sales went up EUR 335 million, or 20 %, to EUR 1,980 million. After adjusting for changes in the reporting entity and currency translation factors, net sales went up EUR 100 million, or 6 %. Preusse-Baugruppe, although acquired in the Dr. Schmidt deal, was not consolidated because it was disposed of in the first half of 2006. International net sales amounted to EUR 549 million (2004: EUR 438 million), increasing a percentage point to 28 % of total net sales. Consolidated income before taxes was down year-to-year due to the restructuring programs. Net income for the year was also down year-to-year.
The Group's payrolls rose to some 7,500 employees on average during the reporting period. The Werhahn Group had around 8,500 employees at year-end. Most of this increase arose due to acquisitions. The number of vocational trainees went up during the year under review, and is supposed to increase further. The number of international employees rose by 518 to 2,696, accounting for around one-third of the workforce on the balance sheet date.
In his remarks on the Werhahn Group's balance sheet, CFO Dr. Michael Werhahn noted, "Consolidated total assets went up EUR 284 million or 10 % in 2005 (2004: EUR 2,785 million). Investment in tangible and financial assets rose by 1/3 to EUR 124 million (2004: EUR 94 million). Non-current assets had climbed EUR 432 million as of the balance sheet date from EUR 659 million to EUR 1,093 million, due mainly to acquisitions."
Stockholders' equity in the Werhahn Group increased 2 % to EUR 1,565 million on the balance sheet date (2004: EUR 1,531 million). After adjusting for Bankhaus Werhahn KG, WW Bank and the financial service companies of the ABC Leasing Group, the equity ratio stands at 68 %. "This capital base is still sufficient for the other acquisitions that we are planning."
During the financial year, Paul Schlickmann retired as a member of the Managing Board and Dr. Norbert Wiemers retired as a member and Chairman of the Managing Board at their own request. Peter Vos joined the Managing Board of Wilh. Werhahn KG as of October 1, 2005. On the same day, Anton Werhahn became Chairman of the Managing Board. The Administrative Board, which had been re-elected in 2005, appointed Nikolaus Ley as Chairman and Dr. Peter Bettermann as Vice-Chairman on June 18, 2005.
2006 Outlook
"The course of business in the first few months of this year has largely met our expectations. Our main challenge for this year will be to integrate our new building materials activities in the Aggregates division," said Chairman Anton Werhahn. The Managing Board expects net sales and income to improve in 2006.
One of the main transactions in 2006 is the acquisition of the remaining 49 % of Deutag GmbH & Co. KG. Preusse-Baugruppe, acquired in the Dr. Schmidt deal, was sold to Strabag.
The Divisions:
Aggregates
The Aggregates division's performance was largely determined by the purchase of the Berlin-based Dr. Schmidt Group's building materials arm. The division effectively supplemented its aggregates and asphalt activities in Germany by acquiring Norddeutsche Mischwerke GmbH & Co. KG (NNW) and Norddeutsche Naturstein GmbH (NNG). Fuelled by external growth, the Aggregates division boosted net sales 32 % to EUR 922 million (2004: EUR 697 million). This move shored up its position as a major German producer of aggregates and asphalt mixtures. Activities in Northern and Eastern Europe continued to perform well. Earnings came in only slightly above 2004 levels because the profits from the acquisition and the additional revenues from operating activities were partly offset by one-time integration charges and mushrooming material costs.
While the long-standing slump in the German building industry did not change much in 2005, the building materials industry saw its economic situation improve. Volumes in the German aggregates sector were stable for the first time since 1999. The German asphalt industry even increased production output by approx. 10 %.
Division companies were also involved in several important construction projects in 2005: the new A 20 Baltic Sea highway, Leipzig's southernmost A 38 beltway, the runway extension at Frankfurt-Hahn airport, and the new SAP Arena in Mannheim. The German construction industry is expecting a recovery to set in this year, and net sales to stabilize, and not drop, for the first time in ten years. "Against this backdrop, net sales and income stand a good chance of improving in 2006. We will help make this happen through strict, cost-centric production and sales processes," announced Peter Vos, the Managing Board member in charge of the division.
Slate
The German roofing market is contracting further in the face of the construction industry slump. However, Rathscheck Schiefer und Dach-Systeme KG, a manufacturer and distribution partner for roofing and façade slate, bucked the trend in 2005 and reported a slight improvement in net sales. Foreign markets accounted for 23 % of total net sales, up from 19 % in the previous year. Profits were still down due to tighter margins.
Rathscheck built up its position in France and the United Kingdom last financial year. It benefited - and continues to benefit - from strong momentum in the rapidly growing Eastern European countries. Rathscheck deployed a separate sales team in Eastern Europe in early 2005 and trained Eastern European roofers in slate-laying techniques. The division aims to boost income in 2006.
Zwilling
The Zwilling Group ratcheted up its net sales 28 % to EUR 257 million in the reporting period (2004: EUR 201 million). This improvement was fuelled by organic growth and the initial consolidation of Tweezerman USA, a provider of premium beauty care tools acquired in the last quarter of 2004. At the end of the year, the division acquired an 80 % stake in Tweezerman India in Pondicherry, India. Unlike previous years, exchange rate factors (the euro's strength against the dollar) had a minimal impact on the Group's sales performance.
In Germany, cutlery and flatware underperformed expectations. The production and sales activities with silver and silver-plated products of M.H. Wilkens GmbH were sold off in late 2005. Zwilling retained the distribution and trademark rights for Wilkens stainless steel cutlery. Profits were still far below the previous year's levels due mainly to these restructuring expenses. Zwilling expanded its presence throughout Europe.
The new Zwilling- and Henckels International-branded knife lines shored up the Group's market position further in the United States. Business performance in China exceeded expectations across the product groups, especially in cookware. To ensure profitable growth, the Group will start building a new knife factory in Shanghai, China, this year. The division expects income to improve significantly in 2006.
Baking Products
The Baking Products division improved profits in 2005. Due to falling prices for grain and flour, net sales dropped 1.5 % to EUR 259 million (2004: EUR 263 million). International net sales accounted for more of the total, increasing to 28 % (2004: 24 %).
In the Industrial and Bakery Flours segment, net sales to domestic and EU customers fell slightly below the prior year's level. The Baking Convenience segment, however, benefited from good sales trends in Austria and Eastern Europe. The Retail Brands segment showed stable performance levels. The division expects income in 2006 to be higher than 2005.
ABC Leasing
The consolidated net sales of the ABC Leasing division rose 5 % to EUR 232 million. However, new loan volumes were down 3 % to EUR 213 million. The reasons for this decline lie in low investor confidence levels among the medium-sized companies served by the ABC Group, which focus more on the domestic market, and fierce competition with vendor-controlled leasing companies. The ABC Group has added factoring (the purchase of outstanding receivables) to its product range for small and medium-sized businesses. Given the slow reversal of hidden reserves and the costs of starting up the new Factoring segment, income did not reach the prior year's level. Allocations to risk provisions remained fairly steady year-to-year. Leasing is expected to become an even more attractive form of financing in 2006. The factoring business gives the ABC Group access to more growth opportunities. Therefore, the division expects performance to be satisfactory for the current financial year.
Real Estate
Despite the ongoing economic downturn, the Real Estate division generated EUR 13 million in net sales in 2005, roughly the same as in 2004. Profit was slightly up year-on-year after adjusting for an exceptional item in 2004. The division continues to focus on Werhahn's office and retail space in prime locations in major German cities. Profits are expected to remain steady in 2006.
Shopfitting
Sluggish consumer sentiment dampened retailers' readiness to invest in 2005, especially in Germany. The industry's performance in European countries outside Germany also slowed down.
The Shopfitting division reported an above-average increase in net sales thanks to the acquisition of British-based GWS in February 2005. International business contributed a greater proportion to net sales, especially in the United Kingdom, Benelux and France: 55 % (2004: 42 %). GWS has been the exclusive dealer for the Shopfitting Group's shelving systems in the United Kingdom for several years; in 2004, it began exclusively distributing check-outs, too. The acquisition has focused the Shopfitting division even more intently on marketing to the core U.K. market.
The division expects net sales and profits to remain stable in 2006.
Stuart
Raw materials prices climbed across the board for the Stuart Group. Customers could not fully absorb these costs, so although net sales were up 2 % to US$ 155 million, or EUR 125 million, profits from operating activities declined substantially. Restructuring projects to meet this challenge are being rolled out in 2006, but were already provided for in 2005 through a charge against earnings.
Since the traditional U.S. and European markets offer few opportunities for growth, resources were redirected to growth markets, especially Eastern Europe and China. Construction on a new Shanghai factory began in May 2005; the facility was opened in May 2006. Exports from the U.S. to China will gradually be phased out in favor of products made at the Shanghai plant.
The restructuring projects initiated at the start of 2006 should bring about profitability improvements that will start taking effect in 2006.