GFKL Financial Services AG - Letter to the Shareholders
Essen, 30. November 2004
Dear Partners,
Dear Sir/Madam,
In accordance with our usual schedule, we would today like to give you a report on the 3rd quarter and the future development of the GFKL Group.
It took rather longer than usual to complete the financial statements for the third quarter, as the initial full consolidation of our new Dutch subsidiary Transned Lease B.V. took place on September 30, 2004. Further to this initial consolidation in Essen, which was already complex in itself, our colleagues in Eindhoven issued a financial statement as of September 30, 2004 which was the first to comply with international accounting regulations (IFRS). This naturally led to a considerable amount of extra work.
I would like to thank the accounting teams in Essen and Eindhoven for their exceptional commitment, as a result of which the delay was limited to a mere two weeks despite the complexity of the material.
Highly gratifying result as of September 30, 2004
In all, we can be very satisfied with the consolidated earnings generated during the first nine months. As of September 30, 2004, the Financial Outsourcing sector had contributed 12.4 million EUR to earnings (+ 6.8 million EUR = +121% compared to the previous year), well above the previous year’s result and well over the target figure. The holding in ABIT AG (currently approximately 55%) has developed very successfully in the last quarters; consequently the executive boards of GFKL and ABIT have for the last few weeks been holding intensive discussions about a possible merger of the two companies. After careful examination, we have reached the conclusion that the advantages of complete integration far outweigh the disadvantages, with the result that we are currently jointly preparing the steps necessary for a merger.
As of September 30, 2004, the Leasing sector’s contribution to earnings amounted to 5.1 million EUR (+ 0.5 million EUR and +11% compared to the previous year), which was up on the previous year’s result. In the leasing sector, we have continued to make up the ground lost at the beginning of 2004; however, we are not yet satisfied with the results, particularly in the machine leasing sector. We currently expect new business to reach approximately 400 million EUR for Universal Leasing and approximately 50 million EUR for Transned Lease by the end of 2004, i.e. approximately 450 million EUR of new business in all. We aim to reach 500 million EUR in 2005. As new business in the leasing sector largely depends on the quality, motivation and scope of our sales team, we reinforced our sales team by 15% in the second half of 2004 in order to reach the figures planned for 2005. After an induction period of approx. 6 months, we expect our success to increase markedly in the second half-year of 2005.
In all, earnings before taxes as of September 30, 2004 rose by almost 80% to 14.3 million EUR.
This income was generated by approximately 750 employees from consolidated sales amounting to 380 million EUR. In the first nine months, our return on equity amounted to 21.0% after taxes.
Forecast
The executive and supervisory boards are currently involved in close discussions about a series of extremely significant projects which will have a marked influence on prognoses for the coming years.The first project to be mentioned here is the above-mentioned merger with ABIT AG, which on being completed successfully in 2005 would improve our chances of acquiring non-performing loan portfolios - particularly in the savings bank sector – as well as increasing the possibility of exploiting considerable operative synergies from our joint collection subsidiaries, currently divided into four companies.In connection with the merger, we have also discussed the option of a short-term stock market listing for GFKL; however, after intensive consultation, we find that current market conditions and GFKL’s own situation, currently influenced by major changes, are less than ideal, and have decided to refrain from using this opportunity. In the medium term, our plans as regards an IPO therefore remain unchanged.In recent weeks, the specialist press reported on several occasions that GFKL is planning to purchase a bank. It is true that we are holding negotiations with several banks which are up for sale, and that these negotiations have in some cases reached an extremely advanced stage. However, the unavoidable financial demands and the considerable effect on the company as a whole means that the purchase of a bank is an extremely complex subject. There is undeniably a whole range of benefits which we could secure for the GFKL Group by purchasing a bank. We believe the structured refinancing of portfolio purchases and of deposit investments to be a logical addition to our highly efficient leasing refinancing through the ABCP programs. The possibility of adding the credit business to our leasing and hire-purchase product range in the investment goods financing sector is also very attractive. Moreover, there is a whole range of qualitative benefits which we could secure by having a bank in the GFKL Group.However, the formal requirements made of a bank involve considerable preliminary investment in systems and procedures, and unfortunately the costs associated with fulfilling bank regulations are not one-off, but would burden the results permanently. We have therefore not yet reached a final decision as regards a purchase, but will give you further information about this important subject as soon as possible.However, I can today give you more information about another important subject. In April, I gave a report about ongoing negotiations with several potential major investors and requested all shareholders to contact us if they are interested in selling. After an intensive due diligence, one of the world’s leading banks now intends to invest 50 million EUR in GFKL with the aim of acquiring approximately 25% of GFKL shares. The bank will invest its own funds in the private equity area by purchasing existing shares (max. 22 million EUR) and by subscribing to a capital increase (min. 28 million EUR).Here I would like to repeat the offer I made in Spring to apply in writing to GFKL’s executive board by December 10, 2004, if and insofar as you are interested in selling shares at a price of 12 EUR.In the event of a capital increase, the new equity capital of approximately 30 million EUR flowing to GFKL would be used to continue the expansion of both our business areas; we are optimistic that – after a decline in the return on equity in 2005 – we would again be able to achieve the currently extremely gratifying return on equity in the medium term despite the capital increase.The executive board expects business activities to continue developing positively in the fourth quarter of 2004; in consequence, we expect our annual net income to be well up on 2003.Yours faithfully,Dr. Peter JänschGFKL Financial Services AG