Letter to shareholders for the third quarter of 2007
Dear Partners, dear Sir/Madam,
Six weeks before the end of the year, the figures for the third quarter confirm that GFKL Group is heading for another successful business year.
Our consolidated revenues increased by 17 percent during the first nine months, reaching approximately EUR 860 million (previous year: EUR 734.3 million). Earnings before taxes rose by 22 percent to EUR 23.6 million (EUR 19.2 million).
As you will have followed in the press, the German Federal Council passed the Corporate Tax Reform Act 2008 in July; this will come into force on January 1, 2008. Due to that, GFKL’s “basic” tax rates will in future be cut from the current rate of approximately 40 percent to 32 percent, a drop of approximately 8 percent. This is good news in itself, but means that deferred tax assets had to be reassessed in the third quarter, thereby affecting earnings. Through this, tax was calculated in the third quarter at an exceedingly high one-off rate of more than 60 percent (!). This explains the slight decline in GFKL Group’s earnings after taxes to EUR 14.0 million, compared to the previous year’s figure of EUR 15.2 million.
Nine months into the year, our core business areas credit (leasing) and collection are showing an excellent performance. The volume of new leasing business grew by 21 percent, reaching a total of EUR 617.5 million (EUR 508.5 million). Despite sustained investments in new markets (England, Spain) and in new products (factoring), earnings before taxes in the credit segment improved slightly by 3 percent, reaching EUR 10.6 million (EUR 10.3 million). This underscores the fact that the credit sector is still the mainstay of our revenues, and with its good results is still making an important contribution to the stability of the GFKL Group. At the same time, it must be made clear that GFKL has long since ceased to be a mere leasing company. These days, more than 80 percent of our personnel work in the collection, software and systems divisions, and these service areas already generate more than 2/3 of our profit – and this trend is increasing strongly.
The persistently positive investment climate in Germany brought us an increase in new business on the domestic market amounting to 10.0 percent, with the contracts concluded reaching a volume of EUR 375.8 million (EUR 341,3 million). Organic growth on the Benelux markets continued at a high level, rising by 20 percent to EUR 69.8 million (EUR 57.9 million). Here the strategy of continually expanding the product range to include new leasing objects is proving its success.
During the first three quarters of the year, we were able to expand GFKL’s leasing activities in England and Spain to our satisfaction – in Spain through our subsidiary taken over last year, while on the English market we are relying on a combination of organic growth and acquisitions. As of September 30, 2007, we posted new business in Spain amounting to EUR 73.6 million (EUR 32.9 million); in England, the new contract volume reached EUR 98.2 million (EUR 76.4 million).
During the recently ended third quarter, the collection division exceeded the previous quarter’s revenues for the sixth time in a row. In all, this segment booked revenues of EUR 79.2 million at the nine-month mark, after EUR 36.7 million in the previous year. At EUR 17.4 million (EUR 7.7 million), earnings before taxes in this sector have also more than doubled.
Responsible for this development were significant levels of sustained, organic growth and the takeover of companies whose products and market access complement our existing portfolio very well. We took another major step shortly after the end of the quarter: GFKL has acquired a share of 48 percent each in two service companies of BAG Bankaktiengesellschaft in Hamm. BAG is the central competence center for processing non-performing and written-off loans in the cooperative banking sector. These companies, which will in future be managed by GFKL and BAG together as joint ventures, will enable us to significantly expand our position as a collection specialist on this market.
We have also set a major new course in the software segment: the consolidation of our software and consulting services for the insurance sector in the subsidiary GENEVA-ID will create synergies, and put us in a position to offer integrated solutions to customers in the insurance sector. The portfolio consists of scalable application products, business process outsourcing and individual IT projects.
During the first nine months of the business year, GFKL generated revenues of EUR 20.4 million (EUR 16.1 million) in the software segment and tripled its earnings before taxes from EUR 1.5 million to EUR 4.6 million. The second business segment with which we are technologically expanding our core business areas leasing and collection is the systems segment. While revenues remained almost the same at EUR 106.5 million (EUR 105.0 million), earnings before taxes in this segment declined sharply by 21 percent to EUR 1.8 million (EUR 2.2 million). In my report on the first half-year, I already referred to the basis effect from the previous year, which led to the decline when comparing the two nine-month figures.
In recent years, GFKL has always even stepped up the pace during the final quarter. I am optimistic that we will also finish 2007 with an outstanding fourth quarter.
Kind regards,
Dr. Peter Jänsch
