Press release 03.09.2007
Letter to shareholders for the first half-year of 2007
Letter to shareholders for the first half-year of 2007
Dear Partners, dear Sir/Madam,
GFKL’s profitable growth continued during the first half-year of 2007:
Consolidated revenues: EUR 548.6 million (previous year: EUR 452.8 million) = + 21 percent,
Earnings before taxes: EUR 16.8 million (previous year: EUR 12.7 million) = + 32 percent
Compared to the previous year, earnings after taxes rose moderately from EUR 10.7 million to EUR 11.5 million, an increase of approximately 7 percent. In the previous year, the tax rate was slashed through the sale of a subsidiary at a profit of EUR 4.8 million, a negligible amount in tax terms. With the equity base rising from EUR 131.1 million to EUR 160.6 million, the weighted return on equity as of June 30, 2007 amounted to 14.9 percent (previous year: 17.0 percent).
In all, we were very satisfied with the first half-year, as GFKL is still well ahead of the planned figures. These positive developments mainly accrued in the credit and collection divisions. Together these two segments generated approximately 85 percent of the GFKL Group’s revenues and approximately 80 percent of its pretax profit.
This business development confirms our strategy of relying on excellent positioning in individual markets while limiting concentration risks by combining various segments. In this way, we profit from the growth of various markets, for example from the consistently positive investment climate in the leasing sector and the increasing demand for professional services in the collection market.
GFKL is still recording marked growth in the leasing business. During the first six months of the year, our leasing business in Germany, for example, was up 11.8 percent on the previous year, rising from EUR 223.0 million to EUR 249.3 million. New business also increased in the Benelux countries (+ 17.2 percent), England (+ 17.5 percent, including the acquired companies Admiral Leasing and the Hanover Group), and Spain (+ 24.7 percent). During the first half-year, GFKL booked new agreements with a total volume of EUR 387.5 million (previous year: EUR 322.8 million), a plus of 20 percent. Nearly two thirds of the new business devolved on the German market, one third on activities abroad.
During the first half-year of 2007, earnings before taxes in the credit sector amounted to EUR 7.1 million (previous year: EUR 6.9 million). Despite the strong growth in new business, earnings improved only slightly, which along with the expansion costs associated with this growth reflects the current pressure on margins in this business sector. We were unable to disassociate ourselves from this. Under current market conditions, leasing is and will remain a volume business. We will therefore consistently pursue our growth course by continuing to focus on European markets.
Demand for professional collection services is maintaining a high level. Active receivables management is now assuming prime importance in many companies. This applies particularly to the financial services sector, in which GFKL is very well positioned as a collection specialist for banks and insurance companies.
In the first half-year of 2007, for example, we as service providers extended a mandate from a major German bank for the ongoing servicing of terminated loan agreements, and received a number of new NPL portfolios for processing. As of June 30, 2007, GFKL was servicing approximately 1.7 million receivables with a total volume approaching EUR 10 billion. Another example: our subsidiary Inkasso Becker took over a portfolio consisting of 25,00 receivables with a total volume of approximately EUR 7.5 million from a well-known mail order company. Since the takeover at the end of March, the entire inventory has been processed in tranches; approximately 40 percent of the purchase price has already been recovered to date.
With the takeover of Multigestion Iberia in April, we gained access to the Spanish NPL market. The company was founded in the same year as GFKL, and leads the Spanish market as a collection specialist for banks. Its core competences are the administration and collection of non-performing loan receivables on behalf of third parties, as well as the purchase of portfolios. 100 of Multigestion’s 250 personnel are located in dependencies in Portugal and Argentina.
At a figure of EUR 50.2 million, GFKL more than doubled its revenues in the collection division compared to the first half-year of the previous year (EUR 19.2 million). This means that we already have approximately 85 percent of the previous year’s revenues in the books. Earnings before taxes in the collection division increased sharply to EUR 11.9 million during the first six months of the year; this is actually more than triple the previous year’s figure of EUR 3.9 million.
In the software and systems divisions, which are the technological pendants of our business model, business developments turned out to be uneven. With the inclusion of an acquisition effect, revenues in the software business improved by 8.5 percent, rising from EUR 11.7 million to EUR 12.7 million; revenues in the systems area increased from EUR 63.3 million to EUR 68.2 million. While earnings before taxes in the software division rose to EUR 3.7 million, more than quadruple the previous year’s figure of EUR 0.8 million, earnings before taxes in the systems division fell by 39.1 percent from EUR 2.3 million to EUR 1.4 million. A positive one-off effect in the first half-year of the previous year from a special payment to our subsidiaries was to a large extent the determining factor behind this base effect. Current business developments in the systems division are grounds for optimism, as we can traditionally expect a stronger second half-year due to year-end business.
At the beginning of the year, we strengthened our software area with the acquisition of ID Innovative Datenverarbeitung GmbH from Kevelaer. ID develops and distributes software components for financial service providers, especially for the insurance sector. We can already report the first successes: ID was recently named a Premium Business Partner of IBM. There is only a handful of companies in Europe which bear this seal of quality. The existing partnership with IBM has thus been upgraded, an advantage which should not be undervalued and which in our estimation will pay off in additional orders. Even today, ID services customers in 16 countries.
After the generally successful course of the first half-year, we entered the second half-year with optimism and motivation.
Even though we are a financial services company, the crisis concerning second-class real estate loans sweeping across the Atlantic from the United States is barely affecting us. We have a solid refinancing basis; in the collection business for banks (fee business), the current situation is offering us further opportunities for growth; and in the NPL business, we only sell direct loans in any case, and no securitization products. In all, the current capital market situation has made our refinancing possibilities slightly more expensive. However, we do not expect this to have any significant effect on results.
In this respect, we are viewing current developments with mixed feelings. The current situation is more positive than negative for the development of GFKL’s short-term and medium-term earnings. In turbulent times, banks and insurance companies are more likely to make use of receivables management specialists such as GFKL.
GFKL is continuing to grow. Here we are getting ready for a stock market flotation. This gives us the flexibility to use the opportunity offered by attractive capital market conditions to step out onto the floor.
Best regards,
Dr. Peter Jänsch