Company analysis.
Buy
Price target: € 34,00
Share price: € 28,00
06/02/06
12:07 h PM
Last Rating/ Target Pr.:
Buy / 32,00 €
Letzte Analyse:
10/27/05
S&P-Rating: n.a.
Explosion Protection
Number of shares:
5,92 m
Market capitalisation:
€ 170,66 m
Index: Prime Industrial
Index weight: 0,08 %
R. Stahl
06/02/2006
Accelerated growth strategy temporarily weighing on earnings
The expected earnings trend in the current year is weighing on the share price
potential in the short-term. However, the resulting growth strategy is forming
the basis for over-proportionate earnings improvements beginning in 2007.
There is also a chance that we will see positive surprises in terms of demand as
early as in 2006. We are therefore reiterating our Buy rating, particularly for investors with a horizon of more than six months. For the moment we are only increasing our price target marginally to € 34.00.
Share Data
EPS current
EPS previous
EV/Sales
EV/EBITDA
PER
€
€
2005
1,45
1,72
0,66
6,0
15,4
2006e
1,36
1,61
0,81
5,8
20,6
2007e
1,75
1,96
0,73
5,0
16,0
2008e
2,13
-
0,67
4,4
13,2
Beta: 0,80
Company Data
Accounting:
IFRS
Kalender:
Q1: 08.06.06
Dividende 2006e: 0,80
Sales
EBITDA
EBIT
EBIT-Margin
Net Profit
€m
€m
€m
%
€m
2005
150,2
16,7
9,3
6,2%
0,1
2006e
164,1
22,8
15,6
9,5%
8,5
2007e
183,5
26,8
19,3
10,5%
10,9
2008e
199,6
30,6
22,8
11,4%
13,2
Continuing operations
R. STAHL, MAV 200D
ISIN: DE0007257727
30
30
25
25
20
20
15
15
10
10
Bloomberg: RSL1 GY
Reuters: RSLG.DE
5
Harald Rehmet
MBA (FH)
Investment analyst
Tel. +49 711 127-74504
harald.rehmet@LBBW.de
5
RELATIVE STRENGTH TO PRIME INDUSTRIAL
300
300
200
200
100
100
0
0
F
M
A
M
J
J
A
S
O
N
D
J
F
Source: DATASTREAM
Equity Research
Pros and cons at a glance
Landesbank Baden-Württemberg
Am Hauptbahnhof 2
70173 Stuttgart
++ Growth strategy begun
–– Declining operating profit in 2006
+ High oil price favours future busi+ ness
Accelerated earnings momentum as
of 2007
www.LBBW.de
Please note the disclaimer on the last page of this study.
Landesbank Baden-Württemberg
Page 2
Company analysis.
Contact persons
Equity Research ++49 / (0) 711 / 127 Head of Equity Research
Horst Soulier – 740 61
horst.soulier@LBBW.de
Machinery team
Alexandra Hauser – 746 69
alexandra.hauser@LBBW.de
Head of Large Caps
Ingo Frommen – 746 48
ingo.frommen@LBBW.de
Gerold Deppisch – 760 02
gerold.deppisch@LBBW.de
Head of Mid/Small Caps
Jürgen Graf – 741 14
juergen.graf@LBBW.de
Patrick Hummel – 735 28
patrick.hummel@LBBW.de
Head of Strategy
Werner Bader – 730 63
werner.bader@LBBW.de
Stefan Maichl – 784 49
stefan.maichl@LBBW.de
Harald Rehmet – 745 04
harald.rehmet@LBBW.de
Falk Reimann – 735 74
falk.reimann@LBBW.de
Equity Sales ++49 / (0) 711 / 127 -
Head of Equity Sales
Uwe Müller-Kasporick - 250 50
uwe.mueller-kasporick@LBBW.de
Sales Trading
Ralf Schiller – 250 60
ralf.schiller@LBBW.de
Institutional Sales
Manfred Kuntzsch – 250 70
manfred.kuntzsch@LBBW.de
Institutional Sales Trading
Andreas Radtke – 250 65
andreas.radtke@LBBW.de
Institutional Client Management
Felix von Lewinski – 250 22
felix.vonlewinski@LBBW.de
Derivatives Sales ++49 / (0) 711 / 127Head of Derivatives Sales
Jan Krüger – 251 10
jan.krueger@LBBW.de
Derivatives Marketing
Oliver Gerst – 251 20
oliver.gerst@LBBW.de
Derivatives Sales Institutionals
Jan Krüger – 251 10
jan.krueger@LBBW.de
Derivatives Product
Management
Volker Honold – 250 08
volker.honold@LBBW.de
Landesbank Baden-Württemberg
Page 3
Company analysis.
Contents
Executive summary
4
SWOT profile
5
Valuation
6
Recommendation
8
Company profile
9
Market and competition
13
Corporate strategy
20
The company in figures
25
Appendix
28
Landesbank Baden-Württemberg
Page 4
Company analysis.
Executive summary
Focus on Explosion Protection.
The course for growth and expansion had already been set in 2004 after the
completion of the restructuring. The sale of Material Handling and the related
cash inflow not only bring about a higher momentum for the strategic expansion of the company but also higher expectations of the capital market with respect to a rapid application of funds. We basically deem the concentration of
capital and management resources on the Explosion Protection division positive,
as this yields higher growth and margins.
High oil price favours market growth.
The growth of the company is furthermore benefited by structural changes in
important customer industries. The higher price level of oil and gas, which can
be assessed as sustainable, should lead to higher investments in the field of development, processing and transport in the foreseeable future. As the capacities
in plant construction are insufficient for this, we do not expect an erratic process but rather a steady increase. This also indirectly benefits the establishment
of LNG and bio fuel.
Making use of growth opportunities.
R. Stahl is considerably expanding its sales structure and assembly capacities,
particularly in North America and Asia, in order to have an over-proportionate
participation in these growth opportunities. The early implemented innovation
offensive will continue and will now be more focussed on the system business.
The value creation will be internationalised at the same time by relocating or
purchasing simpler equipment and components, thus optimising the cost structures.
Start-up costs burden profitability in 2006.
In addition to the backlog of costs from the former company structure, the strategic investments in sales, personnel and manufacturing and the establishment
of the system business will temporarily burden profitability. 2006 can therefore
be perceived as a transition year, though it is forming the basis of accelerated
growth and increased profitability beginning in 2007.
Growth via acquisitions.
The stated goal is to also expand the market position via acquisitions. Sales
growth of more than € 100 m is targeted in the mid-term as the high cash inflow
from the sale of the Material Handling division has enhanced the potential considerably. However, quality and strategic fit is deemed more important than
speed, which is why we do not anticipate reports of success in the short-term.
We are reiterating our Buy recommendation and raising our price target to €
34.00.
Landesbank Baden-Württemberg
Page 5
Company analysis.
SWOT profile
Strengths
n One of the leading suppliers in the field of Explosion Protection
n Broad diversification among customers and sectors
n Solid balance sheet and high profitability
n Lower cyclicality of the business following the sale of Material Handling
Weaknesses
n Market position outside of Europe still underdeveloped
n High share of value creation concentrated in Germany
n Backlog of costs in the holding following the sale of Material Handling
Opportunities
n High oil and gas prices lead to higher investments than expected
n Acquisitions strengthening growth and profitability
n Market share gains through new products and establishment of the system
business
n Expansion of sales organisation leads to faster development of new sectors
and regions
Threats
n Political changes could limit investment behaviour considerably in certain
regions
n Significant weakening of the US dollar could burden competitiveness in
North America and Asia
n Integration risks associated with larger acquisitions
Landesbank Baden-Württemberg
Company analysis.
Page 6
Valuation
A crucial factor for the stock market valuation is the future development of earnings of the respective companies. However, as forecasts for the distant future
are generally less certain, earnings estimates for the near future are usually
used in the valuation of a company. In the following we have conducted different
valuation approaches for R. Stahl which are universally based on a valuation using future earnings. We have conducted a valuation based on both the usual
multiples and a discounted cash flow model.
Multiplier valuation
Peer Group
PER
2006e 2007e
EV/Sales
2006e 2007e
EV/EBITDA
2006e 2007e
EBITDAMargin 07e
Cooper Industries
18,3
16,1
1,73
1,63
11,3
10,4
15,7%
Hubbell Inc.
17,8
15,2
1,28
1,25
9,9
8,8
14,2%
MTL Instruments
14,7
12,5
1,03
0,98
8,2
7,1
13,7%
Median
17,8
15,2
1,28
1,25
9,9
8,8
14,2%
Average
16,9
14,6
1,35
1,28
9,8
8,8
14,5%
21,4
16,4
0,84
0,76
6,1
5,2
14,6%
20,3%
7,9%
-34,5%
-39,5%
-38,6%
-41,2%
R. Stahl
Markup/markdown to
peer group-Median
Source: Value Line, I/B/E/S, LBBW
The listed companies, which at least in certain parts compete with R. Stahl, are
all located abroad. Crouse Hinds (USA) and CEAG (Germany, previously ABB),
which together take on the leading position in the global explosion protection
market, have belonged to Cooper Industries (Bermuda) since 1981 and 1995,
respectively. Hubbell Inc. is the parent company of Killark, the former joint venture partner of R. Stahl in the field of marketing of control units, equipment and
lamps in the USA. MTL Instruments Group is a smaller UK-based company with
expertise in the field of MSR technology of explosion protection. The remaining
competitors are not listed.
R. Stahl has been valued on the basis of established market multiples by using a
comparison with the median multiples of the peer group. This shows that the EV
multiples are considerably below the median of the peer group as opposed to
the PER. This should mostly be due to the “unfavourable” capital structure of R.
Stahl following the sale of Material Handling, which should normalise over time.
The lower operating profit contribution of the Material Handling division for the
higher interest income of the low-interest liquidity has a negative impact on the
net income. In contrast, the enterprise value is directly lowered by the sales proceeds.
The below-average operating profitability seen in the past no longer exists following the sale of Material Handling. As was the case of MTL, only the lower liquidity of the share remains, which may justify a certain discount of the valuation multiples. Assuming equal weights for both the two PE-ratios and the other
four EV-multiples with their respective median values, a value of € 34.48 is calculated.
Landesbank Baden-Württemberg
Company analysis.
Page 7
Discounted cash flow method
As an alternative to the multiplier approach, we have also valued R. Stahl on the
basis of a discounted cash flow model (DCF). This approach sufficiently takes
account of the company’s positive future perspectives for a longer time frame.
The following assumptions underlie the model:
DCF model - input parameters
Riskfree interest rate
Market risk premium equity
Beta factor
Cost of equity
Cost of debt (after tax)
Equity ratio (market value)
WACC
Terminal growth rate
3,9%
5,7%
0,8
8,5%
3,3%
80,0%
7,4%
1,0%
Source: LBBW
The operating free cash flow forecasts are displayed for the period 2006 to
2015, with detailed estimates underlying the first phase through 2008. In the
second phase from 2009 to 2015, the essential value drivers are projected for
the future at a declining rate. We are using a more cautious forecast for the EBIT
margin compared to the last forecasting period.
Free Cash Flow (€m)
2006e
2007e
2008e
2009e
2010e
2011e
2012e
2013e
2014e
2015e
Sales
growth (yoy)
164
9,3%
184
11,8%
200
8,8%
216
8,0%
232
7,5%
248
7,0%
267
7,5%
285
7,0%
304
6,5%
322
6,0%
EBIT
EBIT margin
15,6
9,5%
19,3
10,5%
22,8
11,4%
23,7
11,0%
24,3
10,5%
24,8
10,0%
25,3
9,5%
25,7
9,0%
25,8
8,5%
25,8
8,0%
- taxes on EBIT
Tax ratio
5,9
38,0%
7,3
38,0%
8,7
38,0%
9,0
38,0%
9,2
38,0%
9,4
38,0%
9,6
38,0%
9,8
38,0%
9,8
38,0%
9,8
38,0%
+ Depreciation
of sales
7,2
4,4%
7,5
4,1%
7,8
3,9%
8,2
3,8%
8,6
3,7%
8,9
3,6%
9,3
3,5%
10,0
3,5%
10,6
3,5%
11,3
3,5%
Accruals
of sales
+ Delta accruals
42,5
25,9%
1,0
44,2
24,1%
1,7
45,8
23,0%
1,6
48,5
22,5%
2,7
51,0
22,0%
2,5
53,3
21,5%
2,3
56,0
21,0%
2,7
58,5
20,5%
2,5
60,8
20,0%
2,3
62,8
19,5%
2,0
= Operating Cash Flow
17,9
21,2
23,5
25,6
26,1
26,6
27,7
28,4
28,9
29,3
- Capex
of sales
9,0
5,5%
9,2
5,0%
9,6
4,8%
9,7
4,5%
10,0
4,3%
10,2
4,1%
10,7
4,0%
11,4
4,0%
12,2
4,0%
12,9
4,0%
17,6
10,7%
3,4
19,1
10,4%
1,5
21,0
10,5%
1,9
22,4
10,4%
1,5
23,9
10,3%
1,4
25,3
10,2%
1,4
26,9
10,1%
1,6
28,5
10,0%
1,6
30,1
9,9%
1,6
31,6
9,8%
1,5
= Free Cash Flow
5,5
10,5
12,1
14,4
14,7
15,0
15,4
15,4
15,2
14,9
Present Value
5,3
9,4
10,0
11,2
10,6
10,1
9,6
8,9
8,2
Net Working Capital
of sales
- Delta Net Working Capital
7,5
Source: LBBW
Landesbank Baden-Württemberg
Company analysis.
Page 8
A fair value of € 33.35 is derived per share on the basis of the DCF model, which
yields an upside potential of 19 %.
Fair Value per share (€m.)
Present Value Free Cash Flow planned years
+ Present Value Terminal Value
= Enterprise Value
TV of Enterprise Value
- Net Financial Debt
- Minorities
+ Peripheral Assets
= Market cap total
/ number of common stocks
= Fair Value per share (€)
90,8
115,7
206,5
56,1%
8,2
0,7
0,0
197,6
5,9
33,35
Source: LBBW
Recommendation
The earnings trend expected in the current year is weighing on the share price
potential in the short-term. However, the resulting growth strategy forms the
basis for over-proportionate earnings improvements beyond 2007. There is also
a chance that we will see positive surprises in terms of demand as early as in
2006. Furthermore, the search for acquisition targets could proceed more rapidly than is currently expected following the smaller takeover at the beginning of
the year.
We are therefore reiterating our Buy rating, particularly for investors with a horizon of more than six months. For the moment we are only increasing our price
target marginally to € 34.00.
Landesbank Baden-Württemberg
Company analysis.
Page 9
Company profile
The history of R. Stahl AG in the past 130 years has not always been continuous
and straightforward, but has rather been impacted by the need to adapt to new
circumstances. The sale of the Material Handling division to KCI Konecranes at
the end of 2005 marked the end of an era after more than 100 years. This was
most similar to the sale of elevator production to Rheinstahl (later Thyssen Industrie AG) concluded in the 1970s.
Active in Explosion
Protection for 85
years
The origins of explosion protection date back to the year 1921, when conveying
equipment was equipped for German chemical conglomerates. The company has
joined the ranks of the market leaders thanks to its innovations for explosionprotected electronic equipment. The EX switchgears and EX control gears have
been run as independent company divisions since 1954 and witnessed an erratic
upswing the subsequent years.
The spin-off of the operating divisions into subsidiaries took place at the beginning of the 80s. This decision provided much greater leeway for the divisions.
Following two divestments, R. Stahl Schaltgeräte GmbH remains as the key division (in addition to the small IT segment). A consolidation of the GmbH into the
AG is possible in the mid to long-term, which would lead to leaner company
structures. In this respect the business purpose (explosion protection or safety technology) could also become a part of the firm.
The Explosion Protection division is among the leading suppliers of products,
systems and services in hazardous industrial plants. Areas of application are
mainly pharmaceutical, chemical and petrochemical industrial plants as well as
natural gas and crude oil exploration. Both individual components and systems
for the lightning, control and automation of these plants are offered.
2005 Sales per sector
5%
8%
28%
5%
Oil and gas (off and
onshore)
Pharmaceutical industry
Chemical industry
Food & Beverage
Shipbuilding
Others
34%
20%
Source: R. Stahl
IT is not a core
business
The other division is Information Technology, which comprises ca. 60 employees
with locations in Oberhausen, Berlin, Chemnitz, Frankfurt/M., Stuttgart and Vienna with some 400 customers in Germany. The focal points of altro consult
Germany are consulting projects in the field of human resources & IT Services.
Besides SAP® R/3® HR consulting, altro consult is active with its own data centre
in the area of IT services with the outsourcing of human resources systems. SP
Landesbank Baden-Württemberg
Company analysis.
Page 10
Solution offers ERP consulting with a focus on PeopleSoft® EnterpriseOne. The
“Others” display in segment reporting clearly shows that the IT division is not
perceived as a core business.
Value creation
mostly in Germany
R. Stahl AG, headquartered in Waldenburg (Baden-Württemberg), is the holding
company of the Group. The company made its IPO in 1997 and bundles all
commercial functions as a holding. The product spectrum in the Explosion Protection division is marketed through more than 20 of its own subsidiaries and
commercial agencies in more than 50 countries world-wide. Some 80 % of the
value is generated at two production sites (Waldenburg, Weimar) in Germany.
The Dutch Electromach subsidiary produces control units for large scale plant
construction. The international companies have their own assembly capacities in
order to react flexibly to customer demands. An expansion is planned in India
and China to enable local assembly of the products with cheaper labour costs. A
small component plant is being established in Croatia which should begin production in the summer of 2006.
How an explosion emerges?
Combination of...
Ignition source
Combustible materials
Oxygen
... results in an explosion
Source: R. Stahl
The division delivers electric equipment for explosive areas of industrial plants.
In the chemical and petrochemical industry, crude oil and natural gas production, the mining industry and many other industrial fields, gases, vapours, dust
or fog may leak in the production, processing, transport and storage of combustible materials. Together with oxygen, these can form an explosive atmosphere.
However, an explosion requires an ignition source at the same time and in the
same place (energy in the form of heat or sparks). The goal of primary explosion
protection is to prevent the hazardous mass of an explosive compound from being created. If that is not possible, the goal then becomes preventing an ignition
in an explosive atmosphere (secondary explosion protection). If neither of these
dangers can be eliminated, the tertiary explosion protection should limit the impacts of an explosion to a safe degree.
Products must be
certified
In order to prevent explosion risks, most countries have developed protective
provisions in the form of laws, regulations and standards which should guarantee a high degree of safety. The IEC, which implemented a global monitoring
and certification process, is responsible for international standards in the field
of electrical engineering. However, there is still a lot to be done before a worldwide standardisation of the provisions is achieved. As such, the National Electri-
Landesbank Baden-Württemberg
Company analysis.
Page 11
cal Code (NEC) is effective in the US. This regulates the installation of electric
plants. Systems have been developed which in part deviate from the IEC technology to a significant extent. Although IEC technology was approved 10 years
ago, the North American market and also Asia in part is dominated by NEC technology.
In addition to local approvals (which are always necessary), special products
based on NEC technology have also been developed to be successful in the respective markets. There has recently been a trend towards products that can be
approved in accordance with both standards. This is of particular interest to international customers using the same components around the globe.
Sales of R. Stahl per product group
With the main
competitors:
100%
75%
17
Lamps
CEAG,Hubbell, EGS, Schuch
11
Terminals
MTL, P & F
18
Automation techn olog y
P & F, MTL, Turck
54
Switching devices and
installation technology
Cooper/CEAG, EGS, Bartec
50%
25%
0%
Source: R. Stahl
R. Stahl offers one-stop products, systems and services in the business segments of lightning, terminals, switch gears and control gears as well as automation technology (measuring, control and feedback control technology) . The service encompasses consultancy, planning, development, start of operations and
maintenance. According to its own statements, the company has advanced to
become a technological leader due to its clear strategic direction and many decades of experience combined with high innovative power. The high quality of
products and the global presence yield additional competitive advantages. This
is an important aspect with respect to international key accounts both from
plant construction and consumer sectors. No single customer contributes more
than 2 % to Group sales thanks to the broadly diversified customer portfolio,
which is shown in the following graphs:
Landesbank Baden-Württemberg
Company analysis.
Page 12
Reference customers planning/ plant construction
Broadly diversified
customer portfolio
Source: R. Stahl
Reference customers
Source: R. Stahl
Landesbank Baden-Württemberg
Company analysis.
Page 13
Market and competition
The company specialises in the manufacture and assembly of explosionprotected electrical equipment for areas with high explosion danger. These security products are installed in the highly endangered vicinities of industrial facilities (in the chemical – petrochemical industry, laboratories, colour manufacturing, the pharmaceutical industry and similar industries). Here they avoid ignition in the surrounding, potentially explosive atmosphere which can result from
the failure of parts of electrical facilities and thus guarantee the security of personnel, installations and operating processes.
Explosion protection is not a homogenous market
Systems, machinery and components for explosion protection do not form a
homogenous market but are rather diverse, usually electrical products which are
produced in explosion-protected form (EX products). Entirely different types of
ignition security are used in this process depending on the application.
According to the German Association of Electrical Engineering and Electronics
Industry (Zentralverband Elektrotechnik und Elektronikindustrie e. V. or ZVEI),
the global electronics market amounted to ca. € 2,700 bn last year. Around 8 %
to 9 % thereof came from electrical automation technology, to which the EX
products by and large belong. According to ZVEI estimates, this market is growing by an average of ca. 6 % to 8 % p.a. for the long-term. The contribution of
the German automation industry is ca. 13 % (€ 28.3 bn), while only 8 % of products are being sold in the German market. Following a rise in production in
Germany by nearly 7 % in 2004, growth tailed off to 4 % in 2005. Foreign business performed over-proportionately with an increase of 11 %, which meant that
the export quota has meanwhile risen to 77 %.
Sector performance
World-market process automation 2005 per region
26%
32%
USA
EU excl. Germany
Germany
Japan
11%
ROW
10%
21%
Source: ZVEI
The second-largest segment in Germany after factory automation is process
automation, which also managed to increase its volume by ca. 4 % to € 9.9 bn.
Traditionally however, the process industry only responds with a certain delay to
market developments, which means that growth was only driven by exports.
This segment best illustrates the market development for explosion protection,
Landesbank Baden-Württemberg
Explosion protection is a niche market
Company analysis.
Page 14
as no other market data are available. Nevertheless, size alone demonstrates the
differences. According to R. Stahl estimates, the global market for explosion
protection reached a volume of ca. € 2.1 bn in 2005. The market for process
automation on the other hand achieved a global volume of € 57 bn in 2005. 10
% of this was contributed by the German market while German suppliers cater
for ca. 18 % of global demand. In 2005 they increased their exports by 13 % and
thus reached an over-proportionate export quota of ca. 86 %. This high level illustrates the strong position of German suppliers.
ZVEI estimates global growth for 2005 amounting to 7 % to 8 % and expects a
slowdown to between 5 % and 6 % next year. Emerging markets such as China,
India and Russia are growth drivers. Growth rates are extraordinary in the business with Russia, mainly due to the ample resources of raw materials. As a consequence of strongly risen prices, investments for both the exploitation and
processing of resources are being substantially increased. In addition to the
prevalent oil and gas sector, there was also dynamic growth in almost all other
process industries. The largest single market, the USA, managed to grow overproportionately compared to Europe.
World market of process automation 2005 per customer
group
11%
6%
Mining
15%
Power industry
9%
Crude oil and natual gas
exploitation
Crude oil processing
9%
Chemicals
14%
Pharmaceuticals
Food and luxury foodstuff
6%
Machinery
Other customers
11%
19%
Source: ZVEI
Oil and gas price as
growth drivers
From the perspective of the sector development, the oil and gas sector in particular showed the strongest growth with double-digit growth rates. Due to the
strong demand and the high prices, there is investment in both process optimisation and the tapping of new resources. Both have a positive effect on the sales
of automation-specific components. Long planning phases usually precede big
projects, meaning that investments should increase in scale in the next few
years. The reserve replacement rate of the sector, closely watched in the capital
markets, declined across the board, which should also indicate a higher demand
in order to ensure that the mathematical reach of the secured oil and gas reserves does not melt down further. This is also demonstrated by the usual longterm investment plans of the oil industry which, compared to last year, were increased by a double-digit percentage point (sector average).
According to estimates by the French petroleum institute (IFP), expenses for the
exploration rose by 13 % in 2005 to USD 170 bn and are to be raised by another
8 % to 10 % in 2006. Emerson Electric, one of the largest process control system
Landesbank Baden-Württemberg
Page 15
Company analysis.
manufacturers in the USA, expects a near doubling of oil and gas projects for
the period of 2006 to 2010 compared to the period 2001 to 2005.
Trend reversal in
chemicals...
There is also a turning point in the perennially declining investments in the
chemicals industry. The fact that in this sector a mere 10 % of costs is spent on
personnel while 35 % is spent on raw materials and energy illustrates the significance of the production process. The modern automation technology improves
competitiveness through the optimisation of precisely regulated processes and
the reduction of periods of standstill.
The continuously high oil price with its repercussions on the most important refinery products and the good volume demand has meanwhile led to a trend reversal in the willingness to invest. Up to now, investment activity has mainly
been driven by “bottleneck projects” rather than by capacity expansions. Investment budgets have declined accordingly in the last few years. The peak in capital expenditures in the chemical industry in Germany was reached in 2001 (in
Germany as early as 1999) and declined until 2004. In 2005 the German CapEx
ratio reached its lowest level since 1985. However, investments in Germany were
increased by 2 percent to € 5.3 bn according to estimates by the VCI.
On the other hand, the low-point had already been reached in Asia and North
America in 2003 (cyclical peak in 1998). After a slight recovery in 2004, investment growth of the chemical industry should have accelerated in 2005. Europe
is seeing a development similar to that in Germany and the low-point should
have been overcome by now. This should also be supported by the sector’s sustained optimism for 2006.
Olivier Appert, Chairman of the IFP, speaks of the end of cheap oil as a new
paradigm. The overcapacity of the delivery chain, built up as a result of two oil
price shocks in the 70s, has disappeared. As a result of 30 years of low margins,
overly low investments have resulted in scarce refinery capacities. Despite some
isolated new investments, the sector remains hesitant to expand its capacity as
required. This is a result of the past experiences, where capacity was not fully
utilised for a long time.
...and petrochemicals
While the sector does not seem to believe in the sustainability of the high oil
price, new projects are beginning in numerous regions on a calculation basis of
USD 20 to USD 25. In addition to expansions of existing facilities, 14 new projects (as of January 2006) are to be launched in the refinery area by 2009, 78 %
thereof in the Middle East or Asia. Plans for a new facility are even underway in
the USA for the first time in 30 years. According to the basis scenario of the International Energy Agency, these expansions would not even cover half of the
increased demand until 2010. The situation is comparable in the petrochemical
industry.
As far as the other customer groups are concerned, ZVEI stresses the strong
growth in metallurgy, especially steel, as well as facility construction in the food
and luxury food industry and power plant technology in the area of modernisation. Due to cost pressure in the pharmaceutical industry, investment growth
Landesbank Baden-Württemberg
Company analysis.
Page 16
has slowed compared to before despite the fact that a number of projects are on
the market. There is, however, a further upswing in the global pharmaceutical
industry. For 2006 IMS Health forecasts global market growth of 6 % to 7 % and
in Europe the sector is forecast to grow by 4 % to 5 %. On the whole, the speed
of growth in process automation should also continue on a high level in the
coming years.
Market development of explosion protection
Explosion Protection: Market volume and position 2005
Overall market electronic Explosion Protection (million €):
Americas
Central
Asia/Pacific
Total
690
840
540
2 070
550
300
1 180
12
115
15
142
3%
21 %
5%
Relevant market for R. Stahl:
330
Sales R. Stahl:
12 %
Source: R. Stahl
Expansion of reachable market potential
Given the development of new products and the entry into new business segments such as dust explosion protection, the market potential according to the
company should increase by ca. 20 % in the medium term. The expansion of
customer-specific system solutions should play an important role in this. These
open up alternatives to the existing in-house solution for the client, thus yielding
additional growth opportunities which offer additional potential to the market
growth for R. Stahl.
According to company estimates, the market in the second half of the 90s still
showed average growth of 6 % p.a. (which is in line with the growth of R. Stahl,
adjusted for acquisitions) prior to a breakdown after the new millennium. After
the trend reversal of the most important customer segments and in accordance
with the market expectations for process automation, we expect a continuation
of the growth path which in the short to medium term could even exceed the
company’s expectations of long-term growth of +6 % p.a.
Landesbank Baden-Württemberg
Company analysis.
Page 17
Growth driver high-growth industries
n Oil and gas industry
n Transport industry
n Chemical industry
Sectors with strong growth
n Pharmaceutical industry
n Shipbuilding industry
n Food and luxury foodstuff industry
n Fertilizers and feeding stuff
n Power generation
Source: R. Stahl
Sales of growth segments are likely to be higher at R. Stahl compared to process
automation (see chart), although power plant construction only plays a minor
role in explosion protection. Furthermore, structural changes in the important
customer sectors benefit the sales of the company. We expect the higher price
level, which should be sustainable, to lead to considerably higher investments in
the relevant sectors in due course. Since the capacities in facility construction
are not sufficient for this, we do not expect this process to progress in leaps
and bounds, but rather continuously.
Growth driver LNG
...as well as organic
fuel
There are also positive effects in other sectors. For example, the strong demand
for electricity among other things also benefits the sale of gas, for which the IEA
forecasts growth of 3.5 % p.a. until 2020. Transport increasingly takes place in
liquidised form (LNG), even if this is due to diversification of gas supply. The IEA
expects to see the production of LNG quadruple by 2020. This will lead to a sustained high demand in shipbuilding, e.g. for LNG tankers (with a need for EX
products), of which currently up to 100 items are being built. Qatar alone is
planning to expand its LNG fleet from 20 to 90 ships. In addition to this, new
terminals are being built in many countries for unloading LNG tankers. There are
also high growth rates for swimming production units for the extraction and refining of oil and gas.
Another growth area is the area of organic fuel, for which the EU is targeting a
market share of 5.75 % by 2010. Sales benefit from the higher price sensitivity
of consumers to the same extent as state subsidies in the form of tax benefits
and mandatory alloy quotas. As a result, production capacity must be expanded
considerably, which leads to positive effects on demand, especially for EX products. Sector observers expect the construction of 100 new organic fuel facilities
in Europe and 60 in the US by 2010. Of the investment volume of around € 6 bn,
ca. € 200 m is spent on explosion protection. The market leader in the construction of facilities for organic fuel and a customer of R. Stahl is the GEA subsidiary
Lurgi, which recently reported “unchanged strong demand”, i.e. it is being
“swamped” by orders at the moment.
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Company analysis.
Page 18
Competitors
Market shares Explosion Protection in Germany
7%
15%
Bartec
CEAG
3%
Pepperl & Fuchs
25%
R. Stahl
Others
20%
Sources: R. Stahl, based on own product range
The market consolidation in Germany is already well advanced. According to
company estimates the big four dominate ca. 90 % of the relevant market. Externally, the performance of the competitors can only be verified in part, esp. as
the German competitors are not listed and therefore usually do not publish any
figures. The somewhat higher market share than before for Bartec and Pepperl &
Fuchs should, however, primarily be the result of a series of smaller acquisitions.
CEAG, a former subsidiary of ABB, has belonged to the global market leader
Cooper Industries, Inc. since 1996. Since 2004 the company has operated under
the name of Cooper Crouse-Hinds GmbH, so that only the brand has remained.
The product range comprises explosion-protected lightning systems, switch
gears, distribution panels and components for measurement and control technology. There are ca. 500 employees in Germany at three sites.
In 2005 Pepperl & Fuchs achieved sales of € 280 m with 3,050 employees. The
Mannheim-based company produces electronic sensors and components for the
global market of automation technology. Two-thirds of sales are primarily
achieved through sensors for factory automation while one-third goes to process
automation. The company sees itself as the market leader in explosionprotected, intrinsically safe signal separating systems and components for process automation. Furthermore, there is a broad range of fill level products and
the recently acquired, new business segment HMI (Human Machine Interfaces),
which was integrated following the takeover of the Essling-based Extec Oesterle
(this can indirectly be considered as a confirmation of R. Stahl’s strategy).
Bartec generated sales of € 160 m in 2005 with 1200 employees. The Bad Mergentheim-based company operates internationally with 6 production sites and
24 distribution companies in the field of safety technology. The product range is
very broad and comprises for example analysis and measurement technology,
automation technology, electronic engineering for the mining sector, measurement and data collection systems, switch gears and engines and thermal engineering as well as control technology and joining parts technology. With the
support of the financial investor Allianz Capital Partners, which has held
Landesbank Baden-Württemberg
Company analysis.
Page 19
75 % since 2002, sales are to be doubled in the next five years. The mediumterm goal is to become the “global number one in safety technology”.
World-market shares Explosion Protection
9%
7%
EGS
35%
Hubbell
Crouse-Hinds/CEAG
R. Stahl
20%
Bartec
Pepperl & Fuchs
MTL
Others
5%
7%
12%
5%
Source: R. Stahl, based on own product range
The competitors in the US usually offer a substantially larger range of electrical
and electronic products beyond explosion protection. The individual segment
figures can thus only provide rough indications of the business trends. The market consolidation, which has been going on for years now, should continue in
our view and potentially even gain momentum. While today one provider is the
market leader with no broad mid-field very close behind, three major market
participants could become market leaders in the medium to long term according
to R. Stahl. Accordingly, R. Stahl aims to become one of the global market leaders.
In addition to the listed competitors (Cooper Industries, Hubbell and MTL Instruments), EGS is another American company among the most important competitors. EGS Electrical Group, LLC is a joint venture of the SPX Corporation and
Emerson Electric Co., the latter being the leader. With sales of USD 400 m, the
company offers a broad spectrum of electrical products for different target
groups focusing on North America.
Landesbank Baden-Württemberg
Company analysis.
Page 20
Company strategy
As early as in 2004, the company again set the course for growth and expansion
following the end of its restructuring. The sale of Material Handling and the related injection of funds indicates not only more clout in the strategic expansion
of the company, but also higher expectations by the capital markets of a rapid
application of funds. In principle, we consider the concentration of capital and
management resources on the fast growing and more profitable segment of Explosion Protection to be positive.
Goals in Explosion
Protection
The medium term goals in Explosion Protection have been defined as follows:
− Become a global market leader
− Internal sales growth > € 10 m p.a.
− Sales growth through acquisitions of around € 100 m
− Substantially increase sales contribution from America and Asia
−
EBT margin > 8 % to 10 %
Innovations
The innovation offensive launched in 2003 was and is an important factor in
above-average growth.
Growth driver innovation
60
50
42 - 45 %
38.0
40
30
28.8
40.0
32.0
20
10
0
2002
2003
2004
New products*-Share in total sales (in %)
2005
Ziel
Säule 2
* Market launch in the last 5 years
Source: R. Stahl
Rising R+D ratio
On the basis of more efficient internal processes and a gradual expansion of the
development capacity, the sales contribution from the new products has increased substantially since 2003. This was an essential prerequisite for the
strong growth of the last few years with significantly increased earnings power.
The R+D ratio, which had already been increased to 6 %, is to be further increased towards 7 % to 8 % in order to realise sustained high innovation power.
The contribution of new products should therefore move towards 45 % (up to 50
%), naturally at a more moderate speed than before.
Exhibitions are always an important time for innovations. New products are often developed particularly with these dates in mind so that they can be presented to a broad expert public where they receive their initial feedback. In
2006, two of the most important exhibitions for process automation occurred in
Landesbank Baden-Württemberg
Sector exhibitions
featuring product
innovations
Company analysis.
Page 21
the same year. The Interkama+, which took place in the context of the Hanover
fair from 24.04.2006 to 28.04.2006, called itself the “leading international exhibition for process automation”. Three weeks later (15.05.2006 to 19.05.2006),
the suppliers presented themselves at the “world forum for the process industry”, the Achema in Frankfurt, which occurs every three years. There R. Stahl
presented a number of new products and system solutions in all product areas.
For process automation the company showed new solutions for Fieldbus systems (ISbus), optical ring transformers and new variations of the ISpac ex I isolators.
Ex i
or
BU S
CPU
CPU
BU S
I /O
I /O
CPU
Different solutions for field instruments
Ex i
or
Ex i
al
on
nti
ve
n
Co
m
Re
ote
I/O
ld
Fie
s
bu
Source: R. Stahl
New fieldbus solutions
With the explosion-protected Remote I/O System IS1, R. Stahl has offered the
ideal solution for conventional and HART-enabled field instruments at an optimal
cost for the last few years. Now this successful system with components and
system solutions is being expanded and sensibly complemented for Foundation
Fieldbus H1 and Profibus PA. The new system called ISbus comprises both appliances and accessories for the H1 or the PA Fieldbus. Fieldbus Solutions is the
homogenous approach of connecting all existing generations of field instruments with control systems. With Fieldbus Solutions, R. STAHL offers an interface for conventional sensors and actors for HART field instruments as well as
for Foundation Fieldbus H1 and Profibus PA with the new System ISbus. The explosion-protected Remote I/O System IS1 is complemented and expanded with
ISbus for the H1 and PA Fieldbuses. R. STAHL expects Fieldbus Solutions sales of
€ 3 – 4 m in the next two years.
A fieldbus is an industrial communications system that connects a number of
field instruments (sensors and actors) with a steering device. The fieldbus technology substitutes digital transmission technology with analogue signal transmission. It is also increasingly used in the area of process automation, as it has
a number of advantages (lower wiring, start-up and operating costs) compared
to conventional technology. It is now possible for use in explosion-endangered
areas as well, though this is even more complex and expensive than under more
secure conditions.
Landesbank Baden-Württemberg
Company analysis.
Page 22
Regional growth
In addition to the introduction of new products, R. Stahl is increasingly concentrating on entering into markets which have not yet been penetrated systematically. This particularly applies to the growth regions in Asia. For example, the
company is expanding assembly in India and China in addition to manufacturing
components in India. Furthermore, there are regions with comprehensive raw
material resources such as the Middle East or Russia which possess more than
26 % of the world’s gas reserves. A key account management was recently set
up here. The distribution structure is also to be expanded in the whole of Eastern Europe.
Canada is an attractive market
New hauling capacities are being established in the Gulf of Mexico and new oil
reserves are being tapped. Particularly noteworthy are the oil sands, which depend on a permanently higher oil price level in order to be adequately profitable.
R. Stahl had already received a reference project eight years ago. However, such
projects were put on hold following the oil price collapse at the end of the 90s.
The second-largest deposit of fossil fuels in the world is stored there and, according to Emerson, which has already received orders for the automation as a
general contractor, investments of more than USD 80 bn have already been announced. Therefore the launch of the company’s own subsidiary is planned in
Canada.
2005 Sales per region
10,1%
6,3%
31,4%
Germany
Europe excl. Germany
Americas
Asia
52,2%
Source: R. Stahl
Expansion in Asia
and America
According to the regions with the greatest growth potential, the main focus is
the expansion of business, particularly in Asia and America. While the sales contribution from Asia managed to increase from 6 to 10 % in the last ten years, the
contribution from America fell from 10 % to 7 %. As the regional allocation depends on the respective billing, actual sales are somewhat understated. The vision of a near doubling of sales as announced in 2005 was achieved almost exactly (corresponding to a realised growth of 6.8 % p.a.), but not the planned
substantial expansion of sales contributions outside of Europe. Here the Asian
crisis as well as the separation from a joint venture partner in the USA had a
negative influence. On the other hand, in these markets the installed basis is
lower, meaning that the follow-up business is also weaker.
The company therefore plans to increasingly invest in the expansion of distribution, especially in North America, for example through a doubling of the distribution team and local assembly. A possible component could also be more local
Landesbank Baden-Württemberg
Company analysis.
Page 23
products. This particularly applies to products with NEC technology which continue to dominate the market even ten years after the market opening of the US
for IEC technology. This is also served by the development of global products
which can be used for both standards. This yields the advantage for globally active US companies to reduce their own variety of alternatives.
In Asia, R. Stahl is already present in all major countries. Here the primary challenge is to realise competitive prices in the mid-market as well, i.e. for small to
medium-sized projects with regional tenders against local suppliers. The establishment/launch of component manufacturing in Croatia and the expansion in
India are also meant to contribute to this, so that better prices can be offered
according to a mixed calculation.
Optimisation of
cost structures
At the end of 2003 the initial steps were introduced in the shift towards simple
products and components being purchased by third parties. Some preliminary
work was therefore done and know-how was developed for the company’s own
facility in Croatia. The expansion is likely to occur in a continuous process within
three to five years to avoid personnel cuts at the main facility. In the medium
term 20 % to 25 % of the volume and up to 150 employees could therefore settle
in at the new site, which should help achieve a substantial contribution towards
the reduction of value creation costs.
Strategic expansion Explosion Protection
Market > € 1 bn
Higher
customer
loyalty
Tailor-made system solutions
Own development and
production
More complex (safety equipment)
Simple serial de vices and components
Complementary products for project business
Acquisition or low-cost
location
Acquisitions
Source: R. Stahl
Development of systems business
On the other hand, resources are being freed up in order to increase the focus
on the expansion and development of the systems business. Facility construction companies now increasingly tend to buy partial systems within the context
of concentrating on their core business. This particularly applies in the current
situation of strong company growth. This is about intelligently combining the
appliances, systems and application know-how of the customer with the explosion protection expertise of R. Stahl into a system. This yields stronger client relationships and the closer ties to the end customer open up important market
information. Customer-specific system solutions in particular enable the company to set itself apart from the competition and thus to achieve a better basis
for the marketing of components. The goal is to improve competitiveness
through higher quantities and thus to increase the market share. An essential
contribution to this is now also made by the improvement in delivery reliability,
Landesbank Baden-Württemberg
Page 24
Company analysis.
which has meanwhile been achieved and which in the last two years has risen
from 70 % to 92 % in almost half the lead time.
Acquisitions
Given the planned strategic orientation, acquisitions could help to reach individual goals more quickly. In this respect, possible purchases are decided upon
based on whether they open up additional product areas, strengthen the expertise in the systems business or can expand the regional market position in Asia
or America. Another prerequisite is that acquisitions are to contribute to earnings as of the first year. It is also intended that the management of the acquired
companies will be retained.
Smaller acquisitions
more likely
We expect R. Stahl to find a small, owner-led company which for example is
looking for long-term security in its work or cannot expand internationally on its
own. We therefore do not consider a “big solution” likely, but rather expect a series of smaller takeovers. This should also mean lower risks for the integration
of the companies and we hope that paying top prices can be avoided. The first
examples of smaller acquisitions were the two takeovers in Q1 2006 in the segment of light technology, which were carried out as asset deals. Although the
volume appears rather modest these acquisitions show their advantages at second glance. After the integration of the acquired product series into the international distribution structure and the production in R.Stahl’s own facility, a doubling of sales from just € 2 m to over € 4 m with substantially improved earnings should be within reach.
After the sale of Material Handling, up to € 100 m could be mobilised from liquidity and an adequate loan. In addition, the company’s own shares and a possible capital increase from authorised capital of 1.3 m shares could raise another
€ 40 m to € 50 m. This would make a “big solution” possible. However, the major competitors are lacking either the strategic fit or the willingness to sell.
Landesbank Baden-Württemberg
Page 25
Company analysis.
The company in figures
IFRS with negative
impact on figures
The sale of Material Handling to KCI Konecranes as of 31 Dec. 2005 and the
transition of accounting from HGB to IFRS had major impacts on the 2005 financial figures. According to IFRS, almost all Group-internal allocations from 2004
and 2005 have been reversed, as netting is only allowed for continued business
activities.
This primarily refers to the field of commercial and administrative tasks which
are concentrated in the holding for the individual segments. In addition, several
costs were incurred associated with the sale. However, as only the direct costs of
the sale can be allocated to discontinued activities, the remaining expenditures
such as higher provisions for the coverage of potential guarantees also burdened the operating profit of continued activities.
The company therefore provided a reconciliation of the operating profit to an
economically reasonable profit.
Reconciliation of profit from IFRS to German GAAP (HGB) 2005
million €
EBT acc. to IFRS (P&L) -continuing operations
5,080
Cancellation of allocated services for Material handling
2,920
Income from deconsolidation of SPE "Abraxas"
-0,351
XO expenditure related to the sale of Material handling
6,818
EBT (operating) acc. to IFRS
Reconciliation to HGB
EBT (operating) acc. to HGB
14,467
3,633
18,100
Source: R. Stahl
The main plant in Waldenburg was leased through the leasing company Abraxas.
This company was first included in the consolidated accounts in 2004 according
to IFRS. After a new limited partner purchased the majority of the shares,
Abraxas was deconsolidated in 2005 as R. Stahl was relieved from liability.
Development in the past fiscal year
Order intakes of continued activities rose by 7.2 % to € 153.8 m while the Explosion Protection division increased by 8 %. However, it should be considered that
the sale of Material Handling activities from the sales organisations also had
temporarily negative effects on order intake of Explosion Protection. Group sales
expanded by 7.6 % to € 150.2 m with Explosion Protection contributing € 141.9
m (+8.4 %).
Explosion Protection doubled EBT
Reported EBT of the Group climbed by nearly 51 % to € 5.1 m. Adjusted for the
effects from the sale of Material Handling, EBT of € 14.5 m resulted (see table
profit reconciliation). EBT of Explosion Protection nearly doubled from € 8.1 m
to € 15.8 m, equalling a gross return on sales of 11.1 %. This was due to im-
Landesbank Baden-Württemberg
Company analysis.
Page 26
proved cost structures at higher sales volumes. Although earnings of the IT division were burdened by the shutdown of the SAP logistics advisory in Oberhausen and the restructuring of the consultancy business, a positive EBT of €
0.4 m was generated.
Sales proceeds for Material Handling amounted to ca. € 80 m, which exceeded
our estimate of € 65 m to € 75 m. This amount comprises a cash component of
ca. € 40 m, with € 9 m thereof for the cash in hand and the working capital as
well as the relief in terms of pension provisions of likewise € 40 m. This amount
was calculated using a discount rate of 4.5 % (previous year 5.25 %). After deducting direct selling costs and taxes from the sale price largely received in
2005, a book gain of € 29.5 m resulted. The inclusion of the operating profit of
Material Handling yielded a net income of € 32.6 m. Reported earnings per
share of € –0.05 (continued activities) and € 5.43 (Group) distort the figures and
require explanation. We therefore anticipate EPS of € 1.45, derived from adjusted EBT of € 14.5 m and a tax rate of 38 %. A doubling of the dividend to €
0.80, with € 0.20 thereof a bonus for the sales proceeds of Material Handling,
will be proposed at the Annual General Meeting.
Outlook
Explosion Protection - Financials
200
20
150
15
100
10
50
5
0
0
-50
-5
2002
2003
2004
2005
2006e
2007e
Sales (million €)
EBT (Accounting standards: HGB until 2003, IFRS from 2004)
2008e
Sources: R. Stahl, LBBW estimates
Adjustment of the
holding structure
2006 should be a transition year for the company, as a number of start-up costs
and burdening factors will affect earnings. The sale of Material Handling requires an adjustment of the holding structure for the new size of the company.
This particularly applies to the commercial area and the internal IT structure.
Once part of the workforce retires e.g. by way of early retirement and as additional employees with commercial functions have been taken over by Material
Handling, the remaining ca. 20 employees will be further trained for new tasks.
Despite the allocation of provisions in 2005, a backlog of costs remains which
should be gradually reduced.
The optimisation of cost structures is a much more complex and long-term issue
on R. Stahl’s agenda. This includes production in Croatia as well as the expansion of assembly in Asia in order to gradually achieve a more favourable cost
situation and thus generate higher growth. The constant improvement process
is well anchored into the company. The new corporate structure is appropriate
Landesbank Baden-Württemberg
Page 27
Company analysis.
for starting a new wave of process cost analyses and design. New and simplified
software for ERP, CRM and the financial department offer opportunities in the
mid-term to reduce the complexity and IT costs.
Start-up costs for
expansion weigh on
earnings
The strategic expansion of the company comes with a number of investments in
personnel, production and sales that temporarily weigh on earnings. This applies to the establishment of the systems business as well as regionally for Asia
and the Americas. Furthermore, production will begin in Croatia, which in our
view should lead to start-up losses. The product mix is another aspect. The currently rising share of the project business may result in a slight dilution of the
margin in our assessment. This however strengthens the installed basis which is
a major prerequisite for future replacement and component business.
For 2006 R. Stahl expects sales between € 160 and 165 m (+6.5 % to +10 %) and
EBT of € 12 m to € 14 m (-17 % to –3 %). We anticipate sales of € 164.1 m (+9.3
%) with the two smaller acquisitions at the beginning of the year contributing up
to 2 pp to growth. Our earnings expectation of € 13.7 m (-5.4 %) is likewise at
the upper end of the guidance. This yields EPS of € 1.36, which represents a
marginal decline of 6 % compared to the calculated value of the previous year.
Over-proportionate
earnings improvement anticipated as
of 2007
The measures implemented in 2006 should yield a higher growth momentum in
2007 as well as a margin increase. We are forecasting a sales increase of 11.8 %
to € 183.5 m and EBT growth of 28 % to € 17.6 m with EPS of € 1.75. In 2008 we
expect a marginal slow-down in the growth rate of 9 % to € 199.6 m and an
earnings plus of 21 % to € 21.3 m. This yields earnings per share of € 2.13.
Possible acquisitions represent a fundamental aspect for the development of
profits in the future. Each acquisition which fulfils the pre-determined criteria
should enable a direct positive earnings contribution. As the operating business
can be financed by cash flows, the substitution of liquid funds of € 49.0 m
which only generate low returns against a margin in the operating business
yields considerable upside potential.
Landesbank Baden-Württemberg
Company analysis.
Page 28
Appendix
Income statement
2004
2005e
2006e
2007e
2008e
139,6
150,2
164,1
183,5
199,6
0,0
1,3
2,0
2,0
2,0
139,6
151,5
166,1
185,5
201,6
Cost of materials
44,5
45,9
49,5
55,3
60,1
Personnel expenses
60,3
62,8
67,1
73,6
78,5
Other operating expenses
27,2
30,1
29,7
32,8
35,4
€m
Net sales
Change in inventories + other own work capitalised
Total operating performance
Other operating income
8,1
4,0
3,0
3,0
3,0
EBITDA
15,6
16,7
22,8
26,8
30,6
Margin
15,2
11,2
11,0
13,7
14,4
Depreciation and amortisation
7,7
7,4
7,2
7,5
7,8
EBIT
8,0
9,3
15,6
19,3
22,8
Margin
5,7
6,2
9,5
10,5
11,4
- 4,6
- 4,2
- 1,9
- 1,7
- 1,5
EBT
3,4
5,1
13,7
17,6
21,3
Margin
2,4
3,4
8,2
9,5
10,6
Taxes on income
2,2
5,0
5,2
6,7
8,1
EAT
1,1
0,1
8,5
10,9
13,2
Financial result
Margin
0,8
0,1
5,1
5,9
6,5
Earnings discontinuing operations
2,7
32,5
0,0
0,0
0,0
Minorities
0,2
0,4
0,5
0,5
0,6
Net profit
3,6
32,2
8,1
10,4
12,6
0,60
1,45
1,36
1,75
2,13
Earnings per share (€)*
* earnings per share 2005 adjusted
Shareholder structure
8%
Families of company
founders
25%
Institutional investors
53%
Private investors
Treasury stock
14%
Source: R. Stahl
Landesbank Baden-Württemberg
Company analysis.
Page 29
Balance sheet
2004
2005
2006e
2007e
2008e
€m
Assets
197,9
154,9
154,3
163,5
173,8
Goodwill
0,1
0,2
0,2
0,2
0,2
Other intangible assets
4,9
5,3
5,5
5,7
5,9
71,6
38,9
39,7
40,4
41,4
0,4
Tangible assets
Financial assets
0,4
0,4
0,4
0,4
Other fixed assets
10,5
4,3
4,3
4,3
4,3
Fixed assets
87,5
49,1
50,1
51,1
52,3
Inventories
36,7
22,1
23,8
25,5
27,1
Trade receivables
52,3
27,5
29,7
32,8
35,3
4,3
3,3
3,6
4,0
4,6
17,0
49,0
47,0
50,0
54,5
110,3
101,9
104,1
112,4
121,6
0,0
3,9
0,0
0,0
0,0
197,9
154,9
154,3
163,5
173,8
28,1
57,7
61,0
66,6
73,8
Minority interests
0,6
0,7
0,7
0,7
0,7
Pension provisions
74,7
41,5
42,7
44,2
45,8
12,4
Other receivables and assets
Cash and cash equivalents
Current assets
Discontinued operations
Liabilities
Equity
Other provisions
11,6
9,7
10,5
11,6
Financial liabilities
42,6
15,7
10,3
8,7
7,4
Trade payables
16,7
9,6
11,0
12,5
13,8
Other liabilities
23,7
19,4
18,1
19,3
20,0
0,0
0,5
0,0
0,0
0,0
2004
2005
2006e
2007e
2008e
13,2
Discontinued operations
Cash flow statement
€m
Consolidated net profit
3,9
3,1
8,5
10,9
Depreciation and amortization
10,3
7,4
7,2
7,5
7,8
Change in pension provisions
2,6
1,6
1,2
1,5
1,6
Change in working capital
9,9
0,6
- 3,4
- 1,5
- 1,9
Other changes
1,1
1,6
0,0
0,0
0,0
Cash flow from operating activities
27,7
14,3
13,5
18,4
20,7
Capital expenditure
- 9,6
- 6,7
- 5,1
- 9,0
- 9,2
Disposals/divestments
0,7
26,9
0,8
0,7
0,6
Other changes
0,0
0,0
3,4
0,0
0,0
- 6,0
21,8
- 4,8
- 8,4
- 9,0
0,0
0,0
0,0
0,0
0,0
- 1,2
- 2,4
- 4,8
- 4,8
- 5,4
Cash flow from investing activities
Proceeds from capital increase
Dividend payment
Change in financial liabilities
- 7,4
- 0,7
- 5,4
- 1,6
- 1,3
Other changes
- 2,1
- 0,3
- 0,5
- 0,5
- 0,6
Cash flow from financing activities
- 10,7
- 3,4
- 10,6
- 6,9
- 7,3
Other changes
- 0,8
- 0,8
0,0
0,0
0,0
Change in cash and cash equivalents
10,2
31,9
- 2,0
3,0
4,4
Cash and cash equivalents at start of year
6,8
17,0
49,0
47,0
50,0
Cash and cash equivalents at end of year
17,0
49,0
47,0
50,0
54,5
Landesbank Baden-Württemberg
Page 30
Company analysis.
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Page 31
Company analysis.
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