Mannesmann Report to Shareholders
19 November 1998
Mannesmann Report to Shareholders
Mannesmann in the First Nine Months 1998
Mannesmann on Track
- Mannesmann Reaffirms Earnings Forecast for 1998: Marked Increase
- Significant Boost in Earnings for Telecommunications, Engineering and
Automotive
- Telecommunications Continues Strong Growth
- Mannesmann Forms European Network Company 'Euro.map'
DUSSELDORF, Germany, Nov. 19 -- The following press release
was issued today by Mannesmann:
Substantial Earnings Improvement
Mannesmann reports continued high growth of orders and sales in the period
under review and a substantial improvement in the result of ordinary
activities over the same period last year. All sectors contributed to the
sound earnings development. The expectation of a significant improvement in
the result of ordinary activities for the full year 1998 over 1997 remains
unchanged. Engineering, Automotive and Telecommunications will all contribute
to this improvement with marked increases. In light of the weak business
conditions in recent months, Mannesmann now expects earnings for Tubes &
Trading in 1998 to be on par with last year.
Mannesmann's order intake up to September increased by 10%. Sales were up
by 20%. At DM 5.2 bn, investments in the period under review remained on a
very high level. The number of employees rose by 9%. In view of the pending
divestitures of Mannesmann Trading and of Mannesmann Building Material, both
businesses will retrospectively be deconsolidated in the fourth quarter.
Therefore, Mannesmann anticipates an order volume for 1998 on par with last
year and -- as already forecasted -- a sales growth of about 10%.
Jan.-Sept. Jan.-Sept. Change
MANNESMANN 1998 1997 %
DMm DMm
Orders received 33,154 30,226 +10
Sales 31,976 26,718 +20
Domestic sales 14,447 11,578 +25
International sales 17,529 15,140 +16
Employees (30.9.) 131,807 121,235 +9
Investments 5,212 5,004 +4
Order intake of the Group through September rose by 10% to DM 33.2 bn.
Automotive and Telecommunications, in particular, contributed to this growth
with double-digit growth rates. In Engineering, the marked expansion of the
serial business more than made up for the slight decline in long-term
projects. Sales increased by 20% to DM 32 bn. All sectors made positive
contributions with Automotive and Telecommunications again achieving
disproportionately high sales. Above all, the continuing market success of
Telecommunications led to an above-average 25% jump in sales to DM 14.5 bn in
Germany. The sector now accounts for some 45% of the Group's domestic sales.
International business expanded by 16% to DM 17.5 bn.
Engineering, Automotive and Telecommunications contributed to the
substantial improvement in the result of ordinary activities through
September.
The sizeable increase in Engineering resulted largely from the reduction
of losses at Demag with the focus being on Metallurgy. Petrochemicals and
Refinery along with Compressors also developed better than last year. At
Dematic all business units posted higher results, while at Rexroth Hydraulics
dominated the growth in earnings. The rise in profits at Krauss-Maffei was
derived primarily from the success of Mannesmann Plastics Machinery.
Automotive also achieved substantially improved earnings. This resulted
mainly from the favourable business development at Mannesmann Sachs and from
the positive effects of the optimisation measures. The profit reported by
Mannesmann VDO fell short of the previous year's figure due to the purchase
and integration of Philips Car Systems (VDO Car Communication).
Telecommunications again posted a sizeable increase in earnings thanks to
the continued profit growth at Mannesmann D2. The start-up costs at
Mannesmann Arcor and at our international telecommunications activities
(Cegetel and OliMan) continued to develop as planned.
At Tubes & Trading some business units reported a slowdown in the third
quarter. On the whole, however, the results of last year were maintained.
Special Events
Our international telecommunications activities expanded further. In
September, Mannesmann acquired additional shares of OliMan from Olivetti.
Thus, Mannesmann increased its interest to 37.5%.
Mannesmann is in the process of establishing Mannesmann Euro.map, a new
European telecommunications company. It will offer multinational customers
cross-border telecommunications services from a single source. Mannesmann
Euro.map will launch operations in the first quarter of 1999.
Mannesmann has reached an agreement in principle with Thyssen on the
transfer of Mannesmann Trading to Thyssen. Mannesmann Trading has
800 employees and generates sales of DM 2.2 bn.
In October, Mannesmann sold its building material businesses in Germany
and Austria, which employ 1,800 people and report sales of DM 900 m. The
transaction still has to be approved by the German cartel authorities.
Order Intake
Engineering
At DM 13.2 bn, order intake in Engineering was up by 4% compared to the
previous year's level.
The serial business increased by 10% to DM 7.8 bn. Cranes and Handling
Equipment at Dematic and Rexroth Brueninghaus Hydromatik (drive hydraulics),
in particular, boosted orders. In long-term projects the sharp increase in
Defence Engineering at Krauss-Maffei as well as in Dematic's systems business
all but made up for the above-average decline in Metallurgy and Petrochemicals
and Refineries (KTI) at Demag. The reduction in order backlog by 2% to about
DM 20.2 bn was due to the decline at Demag while all other divisions enlarged
their order books.
Adjusted for the Plastics Machinery business transferred in January of
this year and the sale of Verdichter Wittig, order intake at Mannesmann Demag
fell by 11% against last year. Metallurgy (-15%) and Petrochemicals and
Refinery (-18%) reported above-average decline. Reduced international demand
also made itself felt in Compressors (-11%). In Energy and Environmental
Technology orders were down 8% on the previous year's level.
Mannesmann Dematic boosted order intake by 8% excluding the new activities
Kranservice Rheinberg and Crane America Service (USA). Adjusted for
acquisitions, the business unit Cranes and Handling Equipment increased orders
by 13%. The business unit Systems posted an increase of 11%.
Jan.-Sept. Jan.-Sept. Change
ORDERS RECEIVED 1998 1997 %
Mannesmann DMm DMm
Demag 3,426 4,470 -23
Dematic 3,304 2,955 +12
Rexroth 3,880 3,452 +12
Krauss-Maffei 2,632 1,799 +46
Engineering 13,242 12,676 +4
VDO 4,969 3,373 +47
Sachs 3,263 3,201 +2
Automotive 8,232 6,574 +25
Mobilfunk 5,285 4,025 +31
Arcor 1,251 716 +75
Eurocom 4 0 --
Telecommunications 6,517 4,737 +38
Tubes & Trading 4,401 5,378 -18
Other Companies 805 905 -11
Total 33,197 30,270 +10
./. Intercompany orders 43 44 -2
MANNESMANN 33,154 30,226 +10
Of the growth of new orders at Krauss-Maffei (+46%), the newly established
Mannesmann Plastics Machinery accounted for 34 percentage points. Within
Mannesmann Plastics Machinery, Krauss-Maffei Plastics Machinery boosted orders
by 11%. Defence Engineering posted a 90% increase in order intake thanks to a
major contract.
Jan.-Sept. Jan.-Sept. Change
ORDERS RECEIVED 1998 1997 %
Engineering DMm DMm
Serial manufacture
Demag 47 608 -92
Dematic 1,753 1,553 +13
Rexroth 3,880 3,452 +12
Krauss-Maffei 2,116 1,499 +41
Total 7,796 7,112 +10
Long-term projects
Demag 3,379 3,862 -13
Dematic 1,551 1,402 +11
Rexroth -- -- --
Krauss-Maffei 516 300 +72
Total 5,446 5,564 -2
Total 13,242 12,676 +4
Automotive
Automotive Increased Orders by 25% to DM 8.2 bn.
Adjusted for the acquisition of Philips Car Systems, orders were up by 13%
at Mannesmann VDO. Above-average increases were achieved by Passenger Car
Information Systems, Control Systems, Fuel Systems and Cockpit Systems.
After adjustment for the effects of portfolio optimisation, order intake
at Mannesmann Sachs rose by 3%. The increase came, above all, from the
original equipment business in shock absorbers as well as in Rubber Metal
Parts and Gas Springs.
Telecommunications
By the end of September 1998, some 5.2 million subscribers were using the
D2-network of Mannesmann Mobilfunk. In the third quarter of the year, the net
additions of new subscribers averaged approx. 200,000 per month.
The prepaid tariff D2-CallYa contributed to this positive development,
accounting for about 17% of gross additions in the first nine months of 1998.
With approx. 1%, the monthly churn rate continues to be very favourable. The
number of roaming partners increased to 110 in 74 countries.
On August 31, 1998, D2 launched two new Classic tariffs, D2-Classic and
D2-ClassicPremium. In addition, since September 28, 1998, Mannesmann
Mobilfunk has offered two area code tariffs, D2-BestCity and D2-BestCity
Special. As opposed to its competitors, D2 for the first time uses the
innovative cell broadcast technology for its D2-BestCity Special service. Via
the cell broadcast, subscribers are notified of the current local area code
for which local tariffs apply. Starting on November 15th of this year, D2
will expand its range of local call tariffs. In conjunction with D2-BestCity,
D2-subscribers will then be able to select a second area code to which they
can place calls at especially favourable rates.
Furthermore, starting from December 1, 1998, Mannesmann Mobilfunk will cut
the price per minute during peak-time for subscribers using the D2-Fun tariff
by 60 pfennigs to DM 1.29.
By quickly launching new services, Mannesmann Arcor has further expanded
its leading position among the new fixed-line operators. In September, Arcor
boosted total call time usage to approx. 11 million minutes per working day.
This figure rose to 14.8 million minutes in October. In the third quarter,
the new products "Arcor - Internet by Call" and "Arcor - 0700 The Number" were
launched. Internet by Call offers easy Internet access with no contractual
obligations, minimum usage and basic charge. The 0700 service offers Arcor
subscribers a permanent personalised telephone number at which they can be
reached anytime, anywhere.
As of September 1, 1998 Mannesmann Arcor cut its rates for long distance
calls by up to 35%. In addition, Arcor subscribers now receive a volume
discount of 5% on monthly calling revenues of DM 100.
The decision on the monthly charge for unbundled access is due to be
announced on November 30, 1998.
In the third quarter, Mannesmann Eurokom pushed ahead with the expansion
of its international telecommunications activities. Mannesmann increased its
interest in OliMan by 12.5% to 37.5%. The Italian mobile telecommunications
operator Omnitel Pronto Italia increased the number of subscribers to over
5 million at the beginning of October.
The fixed network operator Infostrada acquired the Internet service
provider Italia Online during the third quarter. In mid-September, Infostrada
entered the private subscriber market, winning some 60,000 customers by the
end of the month.
The number of subscribers using the services of the French mobile
telecommunications company SFR rose by over 400,000 to almost 3.4 million in
the third quarter. Cegetel 7 (voice services provider) increased its
clientele to about 315,000 by the end of September.
In Austria, the fixed-line operator tele.ring (Mannesmann share 74.8%) has
prepared its market entry for December 1998.
Tubes & Trading
The sharp decrease in order intake of 18 % at Tubes & Trading resulted,
above all, from significantly lower demand for large diameter pipes and the
marked decline in the trading business and at Mannesmann SA.
Sales
In the first nine months of 1998, Mannesmann boosted sales by 20% to about
DM 32 bn. Changes in Group consolidation, in particular the addition of
Philips Car Systems (PCS), accounted for five percentage points of the
increase. The Group's domestic business again rose by an above-average 25% to
DM 14.5 bn. Telecommunications was largely responsible for this growth. The
Telecommunications sector now accounts for some 45% of domestic sales.
Foreign sales climbed by 16% to DM 17.5 bn.
In Engineering the rise in sales was mainly attributable to Rexroth and
Krauss-Maffei.
Jan.-Sept. Jan.-Sept. Change
SALES 1998 1997 %
Mannesmann DMm DMm
Demag 3,026 2,952 +3
Dematic 2,479 2,237 +11
Rexroth 3,745 3,201 +17
Krauss-Maffei 2,590 1,865 +39
Engineering 11,681 10,126 +15
VDO 4,781 3,134 +53
Sachs 3,181 3,006 +6
Automotive 7,952 6,128 +30
Mobilfunk 5,285 4,025 +31
Arcor 1,251 716 +75
Eurocom 4 0 --
Telecommunications 6,517 4,737 +38
Tubes & Trading 5,198 4,975 +4
Other Companies 1,011 1,041 -3
Total 32,359 27,007 +20
./.Intercompany sales
between sectors 383 289 +33
External sales MANNESMANN 31,976 26,718 +20
Domestic sales 14,447 11,578 +25
Foreign sales 17,529 15,140 +16
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 27%. In
particular, Metallurgy (+57%) as well as Petrochemicals and Refinery (+49%)
contributed to the increase. In Energy and Environmental Technology, on the
other hand, sales were down 15% against last year.
Jan.-Sept. Jan.-Sept. Change
SALES 1998 1997 %
Engineering DMm DMm
Serial manufacture
Demag 72 588 -88
Dematic 1,508 1,311 +15
Rexroth 3,745 3,201 +17
Krauss-Maffei 1,988 1,292 +54
./. Intercompany sales 159 129 +23
Total 7,154 6,263 +14
Long-term projects
Demag 2,954 2,364 +25
Dematic 971 926 +5
Rexroth -- -- --
Krauss-Maffei 602 573 +5
Total 4,527 3,863 +17
Total 11,681 10,126 +15
The increase in sales at Mannesmann Dematic was particularly driven by
Cranes and Handling Equipment (+27%) and Mobile Cranes (+16%).
Excluding the first-time consolidation of Uchida, sales at Mannesmann
Rexroth would have risen by 11%. Domestic sales were up by 13%, foreign sales
by 10%.
Adjusted for the plastics machinery activities taken over from Mannesmann
Demag, sales at Krauss-Maffei rose by 8%. Krauss-Maffei Plastics Technology
increased sales by 18%. Transport Technology doubled its sales. All other
business units did not reach the previous year's invoicing volume.
Excluding changes in Group consolidation, sales in the Automotive sector
rose by 12%.
Adjusted for the addition of PCS, Mannesmann VDO boosted sales by 16%. On
a comparable basis, the domestic companies achieved an increase of 19%, while
foreign sales rose by 10%.
Sales at Mannesmann Sachs expanded by 7 % without changes in Group
consolidation. The increase was attributable to both original equipment
business in shock absorbers and clutches and to Rubber Metal Parts, Gas
springs and Trading.
In Telecommunications, Mannesmann Mobilfunk posted sales of DM 5.3 bn with
an average of approx. 4.4 million subscribers in the first three quarters of
1998. This puts total average monthly revenue (incl. terminals business) at
about DM 134 per subscriber.
Compared with the same period last year, Mannesmann Arcor increased sales
by 75% driven by its strong growth in the business with third-party customers.
Large diameter pipes and special tubes, in particular, contributed to the
sales growth at Tubes & Trading.
Employees
At the end of September 1998, the number of employees totaled 131,807.
Solely due to changes in Group consolidation, some 7,300 employees were added.
In addition, approx. 3,300 new employees were hired. Adjustments in the
workforce at Demag and Tubes & Trading were countered by increases in all
other divisions. In Automotive about 7,800 net new employees were added due
to changes in Group consolidation (in particular, the acquisitions of Philips
Car Systems and Aralmex). Excluding the departure (effective April 1, 1998)
of 1,077 employees, who had carried out non telecommunications-related tasks
for Deutsche Bahn, staff at Arcor would have risen by approx. 3%.
Personnel expenses were up by 6% to approx. DM 8 bn. The 3% rise in
Germany was essentially due to increases in the workforce as well as to higher
salaries and social security contributions. Abroad, the development (+15%)
was primarily influenced by increases in the number of employees.
Sept. 30, Sept. 30, Change
EMPLOYEES 1998 1997 %
Demag 13,241 16,590 -20
Dematic 13,077 12,333 +6
Rexroth 21,325 19,322 +10
Krauss-Maffei 9,167 6,635 +38
Engineering 56,810 54,880 +4
VDO 23,394 16,190 +44
Sachs 19,952 18,021 +11
Automotive 43,346 34,211 +27
Mobilfunk 6,960 5,559 +25
Arcor 6,495 7,369 -12
Eurocom 249 257 -3
Telecommunications 13,704 13,185 +4
Tubes & Trading 14,455 15,045 -4
Other Companies 3,492 3,914 -11
MANNESMANN 131,807 121,235 +9
Domestic companies 82,029 79,780 +3
Foreign companies 49,778 41,455 +20
Investments
The substantial increase in Automotive was due to the acquisitions of
Philips Car Systems and Aralmex. In Telecommunications the marked decline of
investments resulted, above all, from the special effect of the first-time
consolidation of Arcor in the previous year.
Jan.-Sept. Jan.-Sept. Change
INVESTMENTS 1998 1997 %
DMm DMm
Demag 65 78 -17
Dematic 116 92 +26
Rexroth 257 193 +33
Krauss-Maffei 120 36 +233
Engineering 558 399 +40
VDO 1,230 180 +583
Sachs 345 177 +95
Automotive 1,575 357 +341
Mobilfunk 600 523 +15
Arcor 983 2,095 -53
Eurocom 1,152 1,223 -6
Telecommunications 2,735 3,841 -29
Tubes & Trading 218 321 -32
Other Companies 126 86 +47
MANNESMANN 5,212 5,004 +4