Press Release MAN AG...billion. The highest gain was shown by Diesel Engines, up 29 percent to...
Transcript of Press Release MAN AG...billion. The highest gain was shown by Diesel Engines, up 29 percent to...
Press Release
MAN AG
The MAN Group is one of Europe’s foremost industrial players in the sector of Transport-Related Engineering, with sales
in 2007 of some €15.5 billion. As a supplier of trucks, buses, diesel engines, turbo machinery and industrial services,
MAN employs a workforce of around 55,000 worldwide. The MAN business areas hold leading positions in their markets.
MAN AG, Munich, is listed in the DAX (German Stock Index) which comprises the thirty leading stock corporations in
Germany.
MAN AG
Landsberger Str. 110
80339 München
(Munich, Germany)
Corporate Communications
Wieland Schmitz
Public Relations
Andreas Lampersbach
Phone +49. 89. 36098 - 111
www.man.eu
Munich, April 25, 2008
MAN AG Annual General Meeting April 25, 2008 at the ICM Congress Center, Munich
Report of CEO Håkan Samuelsson
It’s the spoken word that counts __________________________________________________________________ Content Page 1. Welcome / Introduction 1 2. Business performance in 2007 1 3. Strategy 6 4. Sustainability 9 5. Prospects 11
1. Welcome / introduction
Stockholders, guests, ladies and gentlemen, welcome to this 2008 annual
general meeting of MAN AG.
Today, I can again report on what has been a most successful year. Just as
2006, this has been the best-ever year in the long history of the MAN Group.
Our company was born in 1758 and so, this year and as you can see from
the hallway, we are celebrating our 250th birthday which makes MAN cer-
tainly one of the world's oldest industrial groups.
This is a heritage of which we are very proud—not only because of its shear
length but also because, looking back, we note that this remarkably long path
has been possible through attributes that even today are highly important to
us—attributes that we intend to maintain: a willingness to change, the ability
to innovate, the courage to implement the right ideas and, not least of all,
financial soundness.
The best example from our history is the collaboration with the then unknown
engineer Rudolf Diesel in developing his engine idea ready for marketability
more than 110 years ago. In fact, the success of the engine has changed the
world and, of course, has shaped MAN quite decisively. Well, in the form of
MAN Diesel, we still have a company bearing the inventor's name.
2. Business in 2007
Now to business in 2007.
� A period remarkable for strong growth coupled with full production capac-
ity utilization.
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� In fact, over the past 5 years, we have achieved a compound average
sales growth rate of 11 percent.
� Growth calls for additional capacities and to this end we have, for exam-
ple, opened the new truck assembly plant in Kraków, Poland.
� China saw the foundation stone laid for a new turbo machinery plant
� The new heavy-duty TGX/TGS truck series were successfully launched
and rewarded with the Truck of the Year 2008 award.
All our business areas benefited from the momentum developed by the
global economy. The latter half of the year saw a slight weakening, above all,
due to the US subprime mortgage crisis. Nonetheless, demand growth was
again vigorous in 2007 in our transport, propulsion, and energy markets. For
example, new truck registrations in Europe gained by almost 7 percent. In
shipbuilding, the boom continued and gross tonnage ordered worldwide
surged 75 percent. Rising demand for commodities and energy were a
sound basis for infrastructure expenditures in important emerging countries.
Order intake
Within this congenial economic environment, we managed to lift order intake
by 17 percent to €19.4 billion. The chief contributor was our biggest business
area Commercial Vehicles, where new business jumped 26 percent to €12.7
billion. The highest gain was shown by Diesel Engines, up 29 percent to €3.4
billion. Following the prior-year surge, business at Turbo Machinery
amounted to around €1.5 billion, virtually the 2006 magnitude. At Industrial
Services, order intake receded 22 percent to €1.6 billion for project-related
reasons.
Both domestic and international business contributed at equal rates. Non-
German business thus again accounted for around 75 percent.
Sales
Despite our already stretched production capacities, group sales climbed at a
double-digit rate, by 19 percent to €15.5 billion. Commercial Vehicles sales
advanced 20 percent to €10.4 billion. Diesel Engines propelled its sales by
21 percent to €2.2 billion, Turbo Machinery by 22 percent to €1.1 billion, and
Industrial Services by 5 percent to €1.4 billion. The growth shown by our
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manufacturing business areas was as rapid as at all possible given the ca-
pacity constraints.
Domestic sales outpaced foreign and hence the latter's share shrank to 72
percent of the total.
Order backlog
With new business racing ahead of sales, order backlog has commensu-
rately advanced—to a new record of €14.8 billion at the end of 2007, almost
equivalent to 12-month sales. Inside 5 years, order backlog has thus virtually
trebled.
Operating profit
Ladies and gentlemen, the congenial economic climate and rising sales vol-
ume have, of course, contributed to a sharp improvement in earnings. How-
ever, a series of measures for enhancing efficiency, broadening flexibility
plus the structural changes we have implemented all impacted favorably.
The operating profit soared 57 percent to a new record of €1.7 billion, pro-
portionately well ahead of the sales hike. All business areas shared in this,
most especially Commercial Vehicles where the operating profit soared 49
percent to a good €1 billion. To this performance, Trucks contributed to an
outstanding degree while Buses reported a loss—to which I will refer later.
The profits contributed by the other business areas were: Diesel Engines up
37 percent to €313 million, Turbo Machinery up 47 percent to €104 million,
and Industrial Services up by 50 percent to €179 million. Our RENK subsidi-
ary boosted its operating profit by a vigorous 80 percent to €68 million.
Returns
In terms of ROS and ROCE we can also report new all-time highs. With op-
erating profit growth outpacing sales gains, the return on sales—ROS—
vaulted from 8.5 percent in 2006 to 11.2 percent and hence for the first time
cleared the 10-percent bar. Almost all business areas posted double-digit
returns: Commercial Vehicles’ climbed from 8 to 10 percent, with Trucks’
alone accounting for 11.3 percent; Diesel Engines’ mounted from 12.7 to
14.4 percent; Industrial Services’ from 8.6 to 12.4 percent, and Turbo Ma-
chinery’s from 7.8 to 9.4 percent.
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The return on capital employed or ROCE likewise rose, from 28 to 31.9 per-
cent. The upgraded operating profit combined with a restrictive trend of net
capital employed boosted our free cash flow—to a remarkable €1.7 billion,
equivalent to about 30 percent of capital employed.
As required in a period of economic boom, both profitability targets, which I
talked to you about at last year’s annual general meeting, were clearly sur-
passed. As you know, these targets are defined for one economic cycle, an
average ROS of 8.5 percent and an ROCE of at least 22 percent.
Net income / dividend
Additional to our operating profit, we achieved a black €183 million from non-
recurring transactions in 2007. This one-off gain is the net of several transac-
tions. First the cash inflow from the settlement after years of litigation against
Freightliner due to faked financial accounts at ERF, the British truck manu-
facturer taken over by MAN. Another source was the gain from the stock
repurchase program thanks to our Scania investment. Offsetting part of this
one-time income were accruals for restructuring and write-down at our Buses
division.
Earnings after interest and taxes came to €1.2 billion, earnings per share
were upsized from €5.05 to €8.24.
The consequence is that we have been able to considerably increase our
dividend. I am happy, therefore, to propose to you in this our anniversary
year our highest-ever dividend of €3.15 per share. We can do this without
sapping either our financial strength or our scope for action.
Financial position / balance sheet
The MAN Group’s financial position showed a significant further improve-
ment, too. We used the high cash inflow to endow our pension fund with an-
other some €700 million, thus covering our pension obligations now at 94
percent.
Balance sheet ratios were appreciably upgraded. The Group’s net financial
debt including Financial Services shrank considerably, from €0.9 billion to
€0.4 billion. In Industrial Business alone we increased net liquid assets from
€0.6 billion to €1.1 billion. After adding our net income for 2007, equity
surged to €5.2 billion.
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Rating
With a view to broadening our financial latitude we commissioned the two
rating agencies Moody’s and Standard & Poor’s with a rating audit for our
group. The outcome: an A- from Standard & Poor’s and an A3 from Moody’s.
Authorization to repurchase treasury stock
The number of shares outstanding in 2007 has remained unchanged as we
have not exercised our authority to repurchase treasury shares. MAN pres-
ently owns no treasury stock. Since the authority is due to expire in Novem-
ber, we are asking you at this general meeting again for a renewal of this
authority for an 18-month period to ensure our latitude for action.
DAX / stock price trend
In all, we made good progress in enhancing MAN’s value in 2007 and this is
also mirrored in the price of your MAN stock. At the close of 2007, MAN
common stock was priced at €113.80 or almost 70 percent higher than at the
start of the year. In the same period, the German stock market index, the
DAX, advanced 22 percent. Over the past ten years, too, our performance is
impressive: Whereas the DAX rose at an annual average rate of 6.6 percent,
our stock mounted by an average 19.2 percent. The start into 2008 was,
however, poor, due to the financial turbulences triggered by the US subprime
market crisis. Virtually all stock prices fell sharply in January. This was fol-
lowed, however, by a period with a certain degree of stability.
Employees
The workforce also benefited from the rising workload and at the end of
2007, we employed a good 55,000 persons or 3 percent more than 12
months before. We therefore created a good 1,300 new jobs.
In order to sustain workforce flexibility in the phase of either rising or reced-
ing workloads, we have raised the proportion of employees from temp agen-
cies to a good 4,000. The number of limited-term employment contracts like-
wise mounted to 3,500.
I would like to take this opportunity to thank all the employees of the MAN
Group. It is their commitment and intense application that have made possi-
ble the strong growth in business volume and earnings. I am also happy to
note that for our employees, this performance has resulted in a bonus aver-
aging around €1,600. In this way, they share in the success scored in 2007.
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3. Strategy
Ladies and gentlemen, important strategic issues that we regularly review
are: the Group's structure; our management system; the production and cost
structures of the business areas; new products, growth markets and regions.
In doing so, an overriding goal is to achieve a balance between growth and
profitability and secure a sustainable value enhancement for the Group.
In formulating our strategy, we see ourselves confronted with the following
challenges:
In the case of Diesel Engines, our target is to become the world’s foremost
supplier of large diesels. With over 80 percent share of the market for large
marine engines, we have already attained supremacy in this particular sub-
market yet in the sector for medium-speed 4-stroke diesels—especially for
power plants—we still have potential. The megacontracts for turnkey power
plants placed so far are already a major step forward.
� Our growth targets we are supporting also through the worldwide expan-
sion of our after-sales operations. Under the name of Primeserv, Diesel
Engines has successfully established itself as a service provider for the
growing population of MAN diesels.
� An example of important technological progress is the newly developed
PGI gas engine which was awarded in January the Innovation Prize of
German Business. This will strengthen our position in the market for
power plants.
� We have created a new production structure in which the German, Dan-
ish and French locations will each strictly focus on certain models. Con-
currently, we are investing in the revamping and expansion of our capaci-
ties.
� And, finally, MAN Diesel which we transformed into an SE two years ago,
we will now reformat into a fully integrated European Corporation. In the
process, our production companies in Europe will be combined and man-
aged as units of one single company. In fact, we are European pioneers
in implementing such a cross-border merger.
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For our Turbo Machinery business area we are aiming for further growth to a
sales volume of at least €1.5 billion which will therefore clearly strengthen
its position on the markets and within the Group.
� We will again develop the service arm of the business through local pres-
ence and new products.
� In China, the biggest single market for our equipment, we are building a
new production plant for compressors in the Shanghai region.
� The challenges posed by climate change are opening up substantial
growth opportunities for us, for example in the liquefaction of gas and
biomass and in the separation and storage of CO2. For such processes
we have important core components in which we are already market
leaders.
For Industrial Services we intend to sow the seeds for sustainable growth
by focusing on fields of business with plenty of growth potential and setting
up business alliances. This is particularly important for accessing new growth
markets.
� In 2007, we therefore contributed a majority stake in our steel trading
unit to a joint venture with CCC Steel in Hamburg.
� Even now we have secured our competencies through several joint ven-
tures and alliances in the field of solar-thermal energy and for sustainable
biofuel concepts.
� We must also be receptive to further-reaching partnerships in order to
facilitate market access in strategic growth regions.
The chief challenges at Commercial Vehicles are ongoing internationalization
and profitable growth with a view to attaining a foremost position in an indus-
try that is gaining global proportions to an increasing degree.
� In order to support our growth efforts in C&E Europe and the CIS, in Oc-
tober 2007 we opened a new truck plant in Kraków, Poland. This addi-
tional capacity came at just the right time in order for us to satisfy the vast
demand. We have also thus strengthened our market position in C&E
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Europe and for six month now also been the biggest Western European
importer into Russia.
� With a view to consolidating our profitability, we have taken important
steps to put our Buses division back on its feet. Buses is now fully inte-
grated with Trucks and hence directly reports to the Executive Board of
MAN Nutzfahrzeuge. The Salzgitter location will concentrate on the modu-
lar production of chassis while the assembly of the complete buses of the
MAN brand is being integrated at the lower-cost locations in Poland and
Turkey. At the Neoplan plant in Pilsting we are talking to the employee
representatives about a solution involving a partner. The plant could then
market its talents as flexible builder of customized buses to third parties,
too. The building of Neoplan premium tourist coaches will be concentrated
at Plauen. Ladies and gentlemen, I feel confident that the Buses division
will thus have a sustainable structure and that we can achieve the returns
we are aiming at. Fiscal 2008 will see some progress. Our bus customers
can continue to count on our high-quality products and the customary de-
pendable services.
� Now that we have signed a joint-venture agreement in India with the aim
of marketing adapted and reliable vehicles there, we are planning for this
year to produce several thousand trucks.
� Regarding a possible alliance with Scania, you are aware of our long-
term strategic notions—and together with our common major stockholder
Volkswagen, there are also sound preconditions for future reflections on
this subject. But today this is not on our agenda since, among other
things, we are fully preoccupied with addressing the high demand and
achieving organic growth.
� Latin America is another important market where we identify great poten-
tial for cooperating with the Volkswagen subsidiary for heavy trucks in
Brazil, especially in engines and components. We are holding talks on this
subject and we are making progress.
As you can see, we have set ourselves ambitious goals, which we are rigor-
ously pursuing, in order to further strengthen MAN. As a focused and ex-
change-listed company with a stable major stockholder, we also have the
necessary preconditions for achieving these goals.
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4. Sustainability
Ladies and gentlemen, MAN has always been run for long-term, sustainable
success to the benefit of all its stakeholders—otherwise we would never
have been able to celebrate our 250th anniversary.
Environmental protection / climate change
Presently the subject of sustainability is being strongly influenced by the de-
bate on environmental protection, especially within the context of climate
change. For MAN, a group that spotlights motor vehicles and diesel engines,
CO2 emissions are naturally a prime concern. In fact, in view of the eco-
nomic interests of our customers, low fuel consumption is nothing new to us.
Nonetheless, we are facing up to our responsibility and intend to proactively
contribute to further reductions.
I would like to list the following areas of action:
� In the engineering development of our trucks we perceive potential above
all in a more efficient powertrain and improved aerodynamics. These are
areas where we can still cut CO2 by up to 10 percent.
� If additionally longer truck combinations with a larger load volume were
permitted, we could achieve another 20 percent and hence altogether up
to 30 percent fuel and CO2 savings per tonne/kilometer. Such trucks are
already on the roads in several EU countries.
� For urban buses we are developing a high-performance and competitive
series-hybrid drive, scheduled to come on stream in 2010. A year ago,
you saw here one of our test vehicles. This achieves around 25 percent
fuel savings.
� In the case of the large-bore diesel engines, our efforts are directed at a
further efficiency upgrade. Electronic control has already enabled us to
much increase engine speed flexibility to make it easier for the ships to
travel slowly without efficiency losses. A reduction in sailing speed could
sink consumption and emissions by up to 40 percent. Moreover, our en-
gines even now will run on biofuel.
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� MAN Turbo is developing and building compressors for CO2 separation
and storage in coal-fired power plants with 90 percent savings potential.
In the necessary compressors we are already market leaders.
� With important components such as turbo compressors and reactors we
are also instrumental in the development and production of second-
generation biofuels according to the Fischer-Tropsch process from timber
waste and other non-edible plants. Here, too, CO2 reductions of 90 per-
cent are achievable.
� Industrial Services markets solar-thermal power and refrigeration, as well
as biofuel plants.
� RENK, our gear unit specialist, will increasingly supply gear units for off-
shore wind turbine plants.
� Last but not least, we define short- and medium-term energy conservation
goals for our plants which involve all the employees.
We are confident that with the aid of engineering, innovation and, of course,
changes in attitude, CO2 emissions can be reduced if efforts to this end are
applied worldwide. We are willing to do our part.
Responsibility
One element of sustainability is that we teach and train both at initial and
advanced levels; that we foster young talent, that we hold on to the best tal-
ent, and also that we prevent discrimination and corruption.
Take the subject of equal opportunity for women and men. A year ago I re-
ported that in 2006 we already had 6 women in senior management positions
within the Group. This compares with a mere 2 in 2004. In 2007, the number
again rose to 20. In order to encourage this trend throughout the workforce
we are increasingly offering for all our employees child day care places, kin-
dergartens and crèches.
In the course of our collaboration with the Technical University of Munich—
our Campus Initiative—we enrolled the first 100 undergraduates in our new
scholarship program in which we take over, in particular, the tuition fees. At
the same time, we are opening our company to innovative student projects
which will be instrumental in promoting early exposure to practical conditions.
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We also organized a series of lectures held by our managerial staff with the
aim of sharing our own experience with the undergraduates.
We have also installed a groupwide Graduate Program by which in 2007 we
already employed 70 graduates and each year there will be an additional 40.
“Proper” conduct in the interests of MAN and society is something that we
organize through our Compliance System. Our Code of Conduct stipulates
binding rules based on ethical and statutory standards. Our Compliance
Board headed by our Chief Compliance Officer coordinates the activities
while two external ombudspersons are available as independent points of
contact. With the aid of our novel Compliance-e-Learning tool which allows
highly illustrative case studies to be examined, we have meanwhile trained
most of our senior management staff. We are developing the system further
and will continue to do everything to prevent possible misconduct and to
safeguard our reputation.
5. Prospects
I’d now like to talk to you about present trends and what lies ahead.
The economy / flexibility
Ladies and gentlemen, following recent years' refocusing efforts your com-
pany has now set its sights clearly on growth. We operate on dynamic capital
goods markets and are nowadays fully preoccupied with satisfying demand
and expanding our capacities. Presently in this the 5th year of economic
boom, we still enjoy a high level of demand. Nonetheless, we cannot disen-
gage ourselves from future economic fluctuations and are thus enhancing
our flexibility parallel to capacity extensions. For example through:
� Production location agreements for improved cost structures and flexitime
systems;
� A larger proportion of temporary employees, and
� Outsourcing noncore operations or components.
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Ladies and gentlemen, I’m confident that thanks to this flexibility,
thanks to our achieved profitability, and thanks to our improved struc-
ture we are in a position to weather a recession without jeopardizing
the achievement of our profitability goals!
Q1/2008
This morning saw the publication of our report on the first quarter of 2008.
The figures show that we have launched into the year very dynamically. De-
mand for our products—particularly outside of Germany—is still very high
and we have again boosted vigorously our operating profit compared with
Q1/2007.
We were awarded new contracts for an aggregate €5.2 billion, up by 8 per-
cent. The gain was derived above all from our diesel engine business where
again higher demand for marine engines raised order intake by 44 percent to
€0.9 billion. At Commercial Vehicles, orders at €3.5 billion remained at the
very high year-earlier level. At Turbo Machinery, order intake inched up; In-
dustrial Services again advanced conspicuously, by 23 percent.
At the end of March at €15.9 billion, order backlog was up by 8 percent to a
new all-time high.
Thanks to the very good order situation, Q1/2008 sales again climbed appre-
ciably, by 16 percent to €3.8 billion. Here, too, non-German business in par-
ticular raised sales by 20 percent to €2.9 billion, driven in particular by inter-
national commercial vehicle and diesel engine sales. Domestic sales in the
first three months rose 5 percent to €0.9 billion. Once again, our sales growth
is limited by our production capacities.
Given this dynamic growth in the first quarter, we managed to boost operat-
ing profit at an even steeper rate, up 43 percent to €455 million. As a conse-
quence, ROS jumped from 9.6 percent in Q1/2007 to 11.9 percent, a 2.3-
percentage point gain. All the manufacturing areas shared in this perform-
ance. At Commercial Vehicles, ROS amounted to 11.0 percent, the heavy
trucks reaching 13.5 percent. This is an area in which we are now among the
leaders in terms of profitability, too. With an operating profit of €2 million,
Buses reported a black bottom line. Among our business areas, the highest
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return within the Group was again reported by Diesel Engines with an ROS
of 14.8 percent.
Growth creates jobs and so we again raised the number of employees. At
March 31, 2008, the MAN Group had a workforce of over 56,000, a good
1,000 more than at the end of 2007.
Ladies and gentlemen, the Q1 figures show that your company is in the best
of shape and that we will continue to grow profitably. The solid performance
has prompted us to slightly level up our 2008 sales and earnings forecasts,
versus the figures predicted in January.
Prospects 2008
For all of this year we expect order intake to continue at an overall high level,
although the truck market in Western Europe meantime tends to return to
normal levels. In conjunction with the record order backlog, which once more
swelled in the first quarter, we will again be working at the limits of our ca-
pacity and achieve a sales growth of a good 10 percent, especially within
regions outside of Western Europe. There will be a repeated advance in op-
erating profit and our returns will match the high level of the first quarter.
And so, ladies and gentlemen, I can state here and now: our anniversary
year 2008 has all it takes to become the best-ever period in our 250-year
history.
Thank you for your attention!
MAN AG
The Executive Board
The speech given by Håkan Samuelsson at the annual general meeting
will be available at www.man.eu.