Letter to Shareholders
Dear Partners, dear Sir/Madam,
“Expanding markets“ – we chose this headline to characterize our review of the business year 2005 as we expanded our activities in all business areas, with regard to both our product range and the markets in which we moved. At the same time, GFKL continued to grow through acquisitions. Today, our company holds a USP in
Germany as a group providing services in finance and IT.
Leasing: growth with European perspective
During the last business year, we expanded our core business areas in the German leasing market to include medical technology, agricultural machinery as well as ships and yachts, among others. The enlargement of our Dutch company’s activities into the neighboring countries of Belgium and Luxemburg emphasized our European growth strategy. Furthermore, in summer 2005, GFKL started business activities in England.
In all, GFKL posted 494.2 million euros of new business in the Leasing division during 2005, equivalent of a rise of 9.6 percent compared to last year’s new business (450.9 million euros). 425.4 million euros were derived from the German leasing business, corresponding to a plus of approximately 8 percent compared to the previous year (393.8 million euros). New business outside Germany – with Universal Leasing Benelux B.V. being consolidated for a full business year for the first time and the newly-founded company in England – amounted to 68.8 million euros.
The business activities of the Leasing division were dominated as well by the first capital market transaction on its own account, which was effected in March 2005. The volume of the emitted ABS bond “FAST 2005 Limited” amounted to 450 million euros. GFKL has accordingly achieved greater independence as regards refinancing.
Financial Outsourcing: market position consolidated
The Financial Outsourcing division continued to strengthen its market position in the individual business units during the business year 2005. As an outsourcing partner, being the first company in Germany to offer insurance companies not only the administration and collection of premium receivables, but also the takeover of entire business processes including personnel, our clients now include ten companies in the insurance sector. Moreover, we have gained companies in the telecommunications and energy supply sectors as clients. Regarding the IT remarketing area, we are now one of the leading companies in Germany. Our specialists traded approximately 72,000 computers in 2005 alone. During the last business year, the volume of receivables accepted by us for ongoing servicing rose to approximately 1.5 billion euros. Furthermore, we were delighted to receive a quality distinction: the rating agency Standard & Poor’s upgraded GFKL’s servicer rating. In 2004, our company was the first in Germany to receive a servicer rating. The rating “Above Average: Outlook Stable”, has now been upgraded one level to “Outlook Positive”, which corresponds to the second-best rating of the 18-level evaluation matrix. By that, GFKL has gained the best servicer rating of any company in Europe. The rating assesses the quality of the administration of current financing agreements and the quality of the management’s defaulting credit and leasing commitments.
At the annual shareholders’ meetings of ABIT and GFKL last year, majority votes approved the merger of ABIT AG with GFKL Financial Services AG. Unfortunately, appeals against the resolutions passed at ABIT’s annual shareholders’ meeting have prevented the merger from being entered into the commercial register so far, so that the merger has not been implemented on the appointed date, January 1, 2005. In this case, the merger agreement calls for the merger of ABIT AG and GFKL Financial Services AG to be made effective 1 January 2006 once it has been entered into the commercial registers.
Investing in continued growth
The result for the business year 2005 was marked by investments in the development of our markets and the expansion of GFKL Group. While the Group’s sales rose by 21 percent from 554.2 million euros to 669.1 million euros, at 19.5 million euros earnings before taxes remained at almost the same level as the year before (19.0 million euros). The commencement of market activities in England, for example, affected earnings with approximately two million euros. However, this commitment will pay off even during the current business year. For 2006, we anticipate our English subsidiary to generate about 100 million euros of new business, thereby breaking even. Moreover, GFKL Group as a whole continues to bear considerable potential for income development – based on a combination of organic and acquired growth.
In regard to the development of net income, special emphasis must be placed on the fact that during the last business year, GFKL increased its recurring earnings before taxes by 29 percent from 9.9 million euros to 12.8 million euros. This is in line with the company’s aim of orienting its income structure on sustainability.
The Leasing division booked earnings before taxes amounting to 13.1 million euros (10.1 million euros), while at 11.9 million euros the contribution to earnings before taxes made by the Financial Outsourcing sector was down on the previous year’s figure of 15.4 million euros. However, a special item amounting to 4.5 million euros derived in 2004 from the dissolution of the valuation reserve for Phinware shares must be taken into consideration. When
adjusted accordingly, earnings before taxes are higher than the previous year’s figure.
In the business year 2005, consolidated earnings before taxes amounted to 16.7 million euros, up on the 2004 figure of 14.1 million euros.
2006: Credit, Collection, Software, Systems
Over the last few years, GFKL has developed from a leasing company into a specialist in finance and IT services offering solutions in the credit, collection, software and systems business. Based on our years of experience as a financial services company, we are able to assist our clients in financing investments, organizing processes and
implementing measures for safeguarding liquidity during every phase of the business process. At the beginning of the year, we reorganized GFKL’s company structure into Credit, Collection, Software and Systems sectors in accordance with our core competences.
Our strengths in the Credit sector lie in the wide range of products, covering the small-ticket, mid-ticket and project finance segments, and in our reasonably priced refinancing via the capital and money markets. Operationally, GFKL will continue working to establish the Universal Leasing brand throughout Europe as begun in 2004. Our aim is to become one of Europe’s leading leasing companies in the medium term. In view of the optimistic economic forecasts for 2006, the company expects business in the German market to continue developing positively. In future, we want to open up potential for cross-selling between this and our other business areas more strongly than before, as for companies flexible investment financing is just one side of the coin; the other consists of additional liquidity strengthening through professional receivables management, whether through collection services or the use of appropriate specialist software.
In the Collection sector, the GFKL Group’s competence centers on the administration and collection as well as valuation and takeover of receivables. The solution portfolio covers all classes of receivables – from the collection of trade receivables for small and medium-sized enterprises via real estate workout to the industrialized handling of receivables in bulk business and the takeover of non-performing loan portfolios. Moreover, with the foundation of a joint venture in Portugal, this sector of GFKL has entered a market outside Germany for the first time. The Collection sector also intersects others of GFKL’s activities. For example, our collection services tie in with our specialist software solutions for credit and receivables management, creating an “extended workbench”.
Further to software products for credit and receivables management, our Software sector covers IT applications and services in the insurance sales, inventory management, health care and business intelligence sectors. Our products address not only companies in the credit and insurance sectors, but also industrial companies and service providers as well as collection companies, small and medium-sized enterprises and the public sector. In particular, the wide-ranging client base in the financial services sector, which covers approximately 70 percent of the savings banks and five of the six largest banks as well as regional central and private banks, constitutes the starting basis for the sale of leasing and collection products, the latter especially in respect to solutions for the outsourcing of business processes concerning receivables handling.
With the takeover of the ADA-HAS Group at the beginning of the current business year, our Systems sector combines our own competence in the financing and re-marketing of IT systems with ADA’s experience in the trade, installation and maintenance of such systems. Our target is the development of new financing products for IT leasing, for example in the form of use-dependent price models. Moreover, we will be offering our clients a comprehensive range of services along with the actual financing. With this, GFKL will position itself as one of the market’s product innovators. Here we will be focusing on the financial services sector. Our leading market position as a systems provider for the insurance sector is a good prerequisite for the continued development of our activities.
During the last business year, GFKL achieved a lot – both strategically and operationally. The Executive Board’s thanks go to our employees, whose commitment, entrepreneurial thinking and high degree of social competence made this success possible. Our goals for 2006 are clear: during the current business year, our 2,000 employees will pass the milestone of one billion euros in sales. In view of the costs which will inevitably be incurred this year through the company expansion and the restructuring of individual business units, our earnings forecast for 2006 is modest. From 2007, we again expect a significant increase in income, which will then again be in line with our long-term plans for earnings growth.
Yours faithfully,
Dr. Peter Jänsch
GFKL Financial Services AG
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