Letter to Shareholders
Dear Shareholders and Readers,
GFKL continued its rapid growth during 2007: consolidated revenues rose by 17% to € 1.2 billion. Earnings before taxes improved 21% to € 32.0 million. Thus we slightly exceeded our profit forecast of around 20% which we issued in the shareholder letter of the business report for 2006. As before, another key objective for us is to increase GFKL’s sustainable earning power. In 2007, approximately 94% of Earnings before Taxes was already being generated by recurring business.
In 2007, all four business segments made use of the opportunities offered by the positive economic climate. The GFKL Group’s new leasing business was 17.5% up, rising from € 726.6 million to € 853.9 million. This positive development was effected by the organic growth of our companies in Germany and on the foreign markets in the Netherlands, England and Spain. In 2007, our activities outside Germany contributed already 39% to the GFKL Group’s new leasing business. The expansion of our European leasing business under the family brand “Universal Leasing” is therefore developing very positively in terms of volume.
However, margins are under strong pressure on the leasing market. In 2007 we were largely able to compensate for this by improving our cost structures. But we do not have much scope left in cost terms, which means that profits in Germany, Spain and the Netherlands are more likely to decline during 2008. One exception to this will be England, where we expect real benefits from scale effects for the first time during the current business year (the third full business year since foundation), leading to a leap in profits.
Universal Factoring commenced operations at the beginning of the year. On the sales side, the first few months were more difficult than we had anticipated. However, new business is now developing gratifyingly, and we look forward to a significant improvement in earnings for this newly founded subsidiary in 2008.
In all, we expect stagnanting earnings in our Credit segment in 2008, which is partly the result of rising refinancing costs.
As the fourth-largest German debt collection specialist, we were servicing non-performing loans with a volume of € 11.3 billion as of the balance sheet date 2007. In the previous year, the portfolio of unsecured consumer loans and collateralized real estate loans amounted to € 7.5 billion. In the non-banking segment, the GFKL Group’s collection companies were processing a receivables volume of approximately € 700 million for commerce, trade and industry at the end of the year.
Average sales growth in the Collection segment over a period of three years amounted to 101%; in this context, earnings before taxes (EBT) showed an average growth rate of 131%. The EBT margin in the Collection segment during the previous business year amounted to 23.8%.
Our very good competitive position as a collection specialist is also reflected by the upgrading of our existing servicer rating by Standard & Poor’s at the beginning of the new business year: with the classification of our servicer competence as “Strong, Outlook Stable”, we are now one of the three best-rated companies in Europe.
The backbone of our business model is technology: the software applications for credit, insurance and receivables management developed by us and marketed to customers, rounded off by IT systems solutions. In 2007, we took over a renowned software specialist in the insurance sector, and bundled our group-wide consulting and software expertise in that market in the subsidiary GENEVA-ID. In this way, we are pursuing our aim of making our Software segment a market leader in the insurance sector, a position already held by the Collection and IT Systems segments.
A general view of business developments shows: GFKL successfully implemented its strategy of a balanced business model once again during 2007. We expanded our very strong position on individual markets, and our combination of segments enabled us to limit concentration risks and use cross-selling effects. The consequences of the so-called subprime crisis only made themselves felt to a small extent, in the form of modest increases in refinancing costs via the commercial paper programs. This and the generally felt pressure on margins in the leasing business were compensated by increasing earning power in the Collection sector.
The gratifying course of business gave us the means necessary for the establishment and take-over of further companies and the acquisition of additional NPL portfolios. And not least: for the creation of more than 100 new jobs. The GFKL Group employed 2,624 personnel as of the balance sheet date. Our thanks go to them for what they have achieved. As employer, we make every effort to offer our personnel optimum work conditions with a dialog-oriented corporate culture, a variety of opportunities for further training, and attractive performance-oriented salary components. For this, the Geva Institute in Munich and the journal “Karriere” awarded us the “Top Employer” seal of quality in 2007 for the second year in a row.
Management and personnel also have ambitious plans for 2008. GFKL’s ample financial resources and wide refinancing basis give us the strength necessary for this. However, we also know that an increase in equity would open up more opportunities for growth. Last year, we therefore carried out highly intensive consultations as to the possibility of a stock market flotation, and also assisted major and long-time shareholders in probing the sale of shares outside the stock market.
However, the generally subdued mood prevailing on the markets since summer caused us to break off discussions at an advanced stage. This is because the Executive Board’s goal has always been to find a solution giving balanced consideration to the interests of the company, personnel and shareholders alike. In this context, our fundamentally healthy financial situation opens up the scope necessary to choose the optimum date.
At the coming annual shareholders’ meeting, we will ask you, our shareholders, to agree to the distribution of a dividend amounting to € 0.10 per share. By that, we want to give the starting signal for a sustained dividend policy.
In operational terms, we aim to increase consolidated revenues by approximately 20% during the business year 2008. At the same time, our objective is to increase margins progressively during the coming years. For this, we are relying particularly on the high-margin Collection segment. In this context, we are not excluding the possibility of implementing short-term capital measures, independent of any plans for a later stock market flotation, in order to maintain our investing power. In this way, GFKL will continue its success in 2008.
Kind regards,
Dr. Peter Jänsch
