Mannesmann Report to Shareholders
20 May 1998
Mannesmann Report to Shareholders
Mannesmann in the First Quarter 1998
Continued Profit Improvement - Good Earnings Outlook
DUSSELDORF, Germany, May 20 -- Mannesmann AG issued the
following statement today:
-- Positive development in orders, sales and profit
-- Particularly strong growth in Telecommunications and Automotive
-- Further profit improvement expected for 1998
-- Engineering: Substantial increase
-- Automotive: Significantly higher
-- Telecommunications and Tubes & Trading: Further improvement
-- Capital increase announced for investments in growth areas
Good start
Mannesmann got off to a good start in 1998 through strong growth as well
as increased profit. Orders received (+12%) and sales (+26%) were up
significantly against the previous year. The profit of ordinary activities
was also higher than in the previous year thanks to the favorable market
development and the achieved market success. Structural improvements realized
by strictly value-oriented management also had a positive effect. All sectors
contributed to the profit increase. Mannesmann also anticipates a higher
profit for the full year 1998. At the end of March, the number of employees
was up by 8% to approx. 128,900 mainly due to the inclusion of Philips Car
Systems (now VDO Car Communication) and to the continued expansion of
Telecommunications.
At DM 11.1 bn, orders received in the first quarter exceeded those of the
same period last year by 12%. Above-average growth was achieved by Automotive
and Telecommunications. The serial businesses in Engineering also reported
marked order growth.
Jan.-March Jan.-March Change
MANNESMANN 1998 1997 %
DMm DMm
Orders received 11,127 9,926 + 12
Sales 9,969 7,936 + 26
Domestic sales 4,691 3,564 + 32
International sales 5,278 4,372 + 21
Employees (31.3.) 128,945 119,915 + 8
Investments 1,977 2,381 - 17
All sectors strongly contributed to the 26% sales rise to DM 10 bn. The
development in Engineering, Automotive and Telecommunications was particularly
good. Telecommunications made up for half of the growth in Germany. Abroad
Mannesmann increased sales by 21%.
Profit improvement
Mannesmann further improved the profit of ordinary activities in the first
quarter of 1998. All sectors contributed to the increase. This was due to
the favorable market development, the market success of all sectors and the
persistently implemented structural improvements. Despite the normal
seasonally low billing volume in the first quarter, Engineering reported a
profit in the first quarter for the first time in several years.
Based on the present situation, Mannesmann expects a further profit
improvement for the full year 1998 compared to 1997.
After the still weak overall profit in 1997, Engineering is expected to
achieve a substantial profit improvement this year.
Automotive can be assumed to significantly increase profit due to the
positive development at Mannesmann Sachs.
In Telecommunications, Mannesmann expects the increased profit
contribution from Mannesmann D2 to more than offset the increase in start-up
costs for the international activities planned for 1998. The start-up costs
of Mannesmann Arcor will decline as planned.
Tubes & Trading is also expected to further improve on the already good
profit level of the previous year.
Capital increase
Mannesmann plans to go ahead with a capital increase following its AGM
which will take place on May 29, 1998. Proceeds to be raised from this capital
increase are intended to amount to approx. DM 3 bn. Just before the capital
increase, Mannesmann intends to implement a 10 for 1 share split and, at the
same time, to switch to individual share certificates. This means that
one DM 50 par value share will be converted into ten individual share
certificates.
Order intake
Engineering
Jan.-March Jan.-March Change
ORDERS RECEIVED 1998 1997 %
Engineering DMm DMm
Serial business
Demag 24 173 - 86
Dematic 618 534 + 16
Rexroth 1,384 1,167 + 19
Krauss-Maffei 728 511 + 42
Total 2,754 2,385 + 15
Long-term projects
Demag 1,144 1,332 - 14
Dematic 415 439 - 5
Rexroth -- -- --
Krauss-Maffei 219 131 + 67
Total 1,778 1,902 - 7
Total 4,532 4,287 + 6
At DM 4.5 bn, order intake in Engineering was up by 6% on the previous
year's level. Serial businesses expanded by 15% to DM 2.8 bn. Above-average
growth in order intake was reported by Cranes and Handling Equipment at
Dematic and Brueninghaus Hydromatik (drive hydraulics) at Rexroth. In
long-term projects (-7%), the decline in orders received by Metallurgy as well
as Energy and Environmental Technology could not be offset by the increase at
Petrochemicals and Refinery (KTI) and the doubling of orders in Defence
Engineering. All divisions contributed to the 6% increase in order backlog to
about DM 20 bn.
Adjusted for Plastics Machinery, which was deconsolidated in January 1998,
order intake at Mannesmann Demag was down by 13% against the previous year's
level. While orders declined at Metallurgy (-32%) and Energy and
Environmental Technology (-20%), KTI succeeded in boosting its order intake
by 16%.
Orders received by Mannesmann Dematic matched the previous year's high
level even without taking into account the new activities at Colby Engineering
(Australia) and Crane America Service (USA). While, on a comparable basis,
the order intake in Systems Engineering fell by 10%, Cranes and Handling
Equipment reported a 21% increase.
Supported by the positive development in the mechanical engineering
sector, Mannesmann Rexroth boosted its order intake in the first quarter 1998
by 19%.
The first-time consolidation of Uchida (Japan) accounted for five
percentage points of the overall growth. Rexroth Hydraulics, Brueninghaus
Hydromatik, Deutsche Star and Rexroth Mecman achieved marked increases.
35 percentage points of the increase in orders received by Krauss-Maffei
(+48%) were accounted for by the inclusion of the plastics machinery
activities from Mannesmann Demag which was due to the foundation of the new
business unit Mannesmann Plastics Machinery. Thanks to a major order from the
German armed forces, orders received by Defence Technology more than doubled.
Automotive
Automotive increased its order intake by 31% to DM 2.7 bn.
The consolidation of Philips Car Systems contributed 36 percentage points
to the rise in orders at Mannesmann VDO. Information Systems for Passenger
Cars, Control Systems and Cockpit Systems showed a particularly strong
development.
Adjusted for the effects of portfolio optimization, orders at Mannesmann
Sachs rose by 11%. The previous year's figures for Rubber Metal Parts were
exceeded by 33% on a comparable basis and for Gas Springs by 11%. At 10%
each, the original equipment business for shock absorbers, clutches and torque
converters as well as the aftermarket business also produced double digit
growth rates.
Jan.-March Jan.-March Change
ORDERS RECEIVED 1998 1997 %
Mannesmann DMm DMm
Demag 1,168 1,505 - 22
Dematic 1,033 973 + 6
Rexroth 1,384 1,167 + 19
Krauss-Maffei 947 642 + 48
Engineering 4,532 4,287 + 6
VDO 1,634 1,082 + 51
Sachs 1,064 983 + 8
Automotive 2,698 2,065 + 31
Mobilfunk 1,596 1,189 + 34
Arcor 380 228 + 67
Eurokom 0 0 --
Telecommunications 1,975 1,417 + 39
Tubes & Trading 1,675 1,907 - 12
Other Companies 265 266 0
Total 11,145 9,942 + 12
./. Intercompany orders 18 16 + 13
MANNESMANN 11,127 9,926 + 12
Telecommunications
At the end of March 1998, approx. 4.04 million customers were using the
D2 network of Mannesmann Mobilfunk. On average, about 165,000 net new
customers per month were added in the first quarter 1998, around 17% more than
in the fourth quarter of 1997. The prepaid tariff D2-CallYa, introduced in
October 1997, contributed significantly to this development in the first
quarter of 1998, accounting for 18% of gross additions. The high percentage
of 24-month contracts and the increased customer loyalty activities by
Mannesmann D2 led to a decline in the average monthly churn rate in the first
quarter to 1.1%. By the end of March, the number of roaming partners had
risen to 97 in 66 countries.
In January 1998, Mannesmann Mobilfunk added the fixed-network product
D2-Arcor//Town to Town, offered by its sister company Mannesmann Arcor, to its
product range. This product allows our customers to make regional, long
distance and international calls from their home telephone at favorable rates.
All calls where the number dialed begins with a "0" are automatically billed
according to the Town to Town tariff and appear on the D2-bill. Mannesmann
Mobilfunk's customer telephone assistance is also available free of charge to
fixed network subscribers.
Mannesmann Arcor successfully launched its private customer business in
the first quarter of 1998. Already in March, more than five million minutes
of call time per working day were routed through the Arcor network. Arcor
continued to develop its indirect sales activities, raising the number of
retail partners to about 1,200 by the end of March.
The international activities managed by Mannesmann Eurokom continued to
develop positively. Omnitel Pronto Italia boosted the number of its
subscribers in the first quarter of 1998 to over three million. In February,
the fixed network telephone company Infostrada received a license for voice
telephony and for building and operating a fixed network infrastructure. In
April, Infostrada obtained the right-of-way along the 16,000 km rail network
owned by the Italian railway Ferrovie dello Stato. In addition, Infostrada
acquired the right to use the approx. 2,000 km fibre-optic network owned by
the Italian railway. At SFR, the French mobile telephone company, the number
of subscribers was increased by about 350,000 in the first quarter of 1998 to
over 2.5 million. In the wireline business, the subsidiary responsible for
private customers, Cegetel 7, had acquired some 140,000 subscribers by March.
At Cegetel Entreprises, the provider of voice and data services for corporate
customers, the order intake remained on a high level. At the end of January
1998, Cegetel signed a letter of intent with Canal+, America Online and
Bertelsmann on a joint entry into the Internet market for private customers.
Tubes & Trading
The 12% decline in orders received by Tubes & Trading was mainly due to
the marked reduction in demand for large diameter pipes which in the previous
year had been very high mainly due to a large Russian order. By contrast,
cold-finished tubes, welded hot-rolled tubes, press fittings and steel
cylinders developed much better than in the first quarter of 1997.
Sales
Mannesmann boosted sales in the first quarter 1998 by 26% to DM 10 bn.
Changes in Group consolidation, in particular the addition of Philips Car
Systems (PCS), accounted for six percentage points of the increase.
Telecommunications was responsible for approx. half the increase of DM 1.1 bn
in domestic business (+32%). Foreign sales were up by 21%.
Jan.-March Jan.-March Change
SALES 1998 1997 %
Engineering DMm DMm
Serial business
Demag 26 146 - 82
Dematic 451 360 + 25
Rexroth 1,249 994 + 26
Krauss-Maffei 624 365 + 71
./. Intercompany sales - 41 - 40 + 3
Total 2,309 1,825 + 27
Long-term projects
Demag 699 614 + 14
Dematic 299 216 + 38
Rexroth -- -- --
Krauss-Maffei 173 154 + 12
Total 1,171 984 + 19
Total 3,480 2,809 + 24
The sales growth in Engineering was driven by Krauss-Maffei, Dematic and
Rexroth.
Jan.-March Jan.-March Change
SALES 1998 1997 %
Mannesmann DMm DMm
Demag 725 760 - 5
Dematic 750 576 + 30
Rexroth 1,249 994 + 26
Krauss-Maffei 797 519 + 54
Engineering 3,480 2,809 + 24
VDO 1,604 1,016 + 58
Sachs 1,053 948 + 11
Automotive 2,654 1,960 + 35
Mobilfunk 1,596 1,189 + 34
Arcor 380 228 + 67
Eurokom 0 0 --
Telecommunications 1,975 1,417 + 39
Tubes & Trading 1,629 1,532 + 6
Other Companies 330 314 + 5
Total 10,068 8,032 + 25
./.Intercompany sales
between sectors 99 96 + 3
External sales MANNESMANN 9,969 7,936 + 26
Domestic sales 4,691 3,564 + 32
Foreign sales 5,278 4,372 + 21
Note: Because of interdivisional sales the sum of divisional sales in the
Engineering, Automotive and Telecommunications sectors does not
equal total sales for the respective sector.
On a comparable basis, sales at Mannesmann Demag rose by 17%. While no
major orders were invoiced at Petrochemicals and Refinery in the first quarter
1998, Metallurgy and Compressors achieved growth rates of 56% and 35%,
respectively.
The sales increase at Mannesmann Dematic was particularly driven by Cranes
and Handling Equipment, Mobile Cranes and Systems Engineering, which reported
increases of between 33% and 38%. The newly acquired companies contributed a
total of six percentage points to the increase.
Adjusted for the first-time consolidation of Uchida, sales at Mannesmann
Rexroth were up by 19%. Domestic sales rose by an above-average 25% while
foreign sales climbed 16%.
Sales at Krauss-Maffei (+54%) expanded by 35 percentage points due to the
takeover of the plastics machinery activities from Demag. Invoicing at
Defence Technology rose by 6%.
In Automotive, Mannesmann VDO boosted sales by 58%, adjusted for the
addition of PCS by 19%. The domestic companies expanded their sales more
strongly (+23%) than the foreign companies (+12%). Adjusted for changes in
consolidation, sales at Mannesmann Sachs rose by 15%. Sales in the whole OEM
business also grew by 15%.
In Telecommunications, Mannesmann D2 posted first-quarter sales of about
DM 1.6 bn with an average number of subscribers of 3.8 million. This puts the
average total monthly revenue (including terminals business) per subscriber at
about DM 140.
At Mannesmann Arcor, about half of the 67% sales growth compared with the
same period a year ago, is attributable to private customer business.
The increase in sales at Tubes & Trading was driven, above all, by large
diameter pipes and cold-finished tubes as well as by the Brazilian subsidiary.
Employees
At the end of March 1998, the number of employees in the Group
totaled 128,945. Changes in Group consolidation -- in particular the
inclusion of Philips Car Systems and Uchida (Japan) -- alone added a net total
of approx. 6,800 employees.
March 31, March 31, Change
EMPLOYEES 1998 1997 %
Demag 13,647 17,277 - 21
Dematic 12,471 11,907 + 5
Rexroth 20,605 18,981 + 9
Krauss-Maffei 8,962 6,466 + 39
Engineering 55,685 54,631 + 2
VDO 22,240 15,964 + 39
Sachs 18,150 17,263 + 5
Automotive 40,390 33,227 + 22
Mobilfunk 6,158 5,029 + 22
Arcor 7,553 7,269 + 4
Eurokom 256 251 + 2
Telecommunications 13,967 12,549 + 11
Tubes & Trading 15,104 15,562 - 3
Other Companies 3,799 3,946 - 4
MANNESMANN 128,945 119,915 + 8
Domestic companies 81,270 79,266 + 3
Foreign companies 47,675 40,649 + 17
Reductions in the number of employees due to adjustments at Demag and at
Tubes & Trading were countered by staff additions in the other Group sectors.
Personnel expenses rose by 8% to approx. DM 2.7 bn. The 4% rise in personnel
expenses in Germany was mainly due to staff additions as well as increases in
payments and social contributions. Abroad (+19%), the effects of staff
additions and exchange rate fluctuations were felt.
Investments
The decline in investments of 17% to about DM 2 bn was solely the result
of the special effects of the first-time consolidation of Arcor (DM 1.8 bn)
last year. This year, by contrast, only DM 1.2 bn was included for the first
time, mainly from Philips Car Systems and Uchida.
Jan.-March Jan.-March Change
INVESTMENTS 1998 1997 %
DMm DMm
Demag 42 12 + 250
Dematic 39 47 - 17
Rexroth 131 30 + 337
Krauss-Maffei 10 9 + 11
Engineering 222 98 + 127
VDO 1,098 51 --
Sachs 160 40 + 300
Automotive 1,258 91 --
Mobilfunk 139 135 + 3
Arcor 180 1,900 - 91
Eurokom 105 75 + 40
Telecommunications 424 2,110 - 80
Tubes & Trading 54 39 + 38
Other Companies 19 43 - 56
MANNESMANN 1,977 2,381 - 17
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