Mannesmann Reports Telecommunications Drives Further Profit Increase
5 August 1999
Mannesmann Reports Telecommunications Drives Further Profit Increase
Dusseldorf, Germany, Aug. 5 --
* Result of ordinary activities increased by 25% to Euro 735 m
* EBITDA for the Group and proportionate Telecommunications EBITDA rose
21% and 82% respectively
* European Telecommunications activities further expanded by acquisition
of majority stakes in Omnitel and Infostrada
* Investments boosted to Euro 13,4 bn
* 1999 expectations:
Significant growth in EBITDA
Higher result from ordinary activities
Net profit slightly lower
Higher Profit
During the first half of 1999, Mannesmann increased the result of ordinary
activities to Euro 735 m, which represents an improvement of Euro 149 m
(+ 25%). This increase was mainly supported by the Telecommunications and
Engineering sectors. Net profit rose by 10% to Euro 250 m. In the first
six months of 1999, the EBITDA for the Group was up 21% to Euro 1.7 bn, while
the proportionate Telecommunications EBITDA increased by 82% to Euro 971 m.
Jan.-June Jan.-June Change
MANNESMANN 1999 1998 %
Euro m Euro m
Sales 9,741 9,125 +7
Engineering 3,085 3,071 0
Automotive 2,873 2,747 +5
Telecommunications 2,809 2,099 +34
Tubes 978 1,238 -21
EBITDA 1,686 1,388 +21
Proportionate
Telecommunications EBITDA 971 533 +82
Result of Ordinary Activities 735 586 +25
Extraordinary Results -52 -4 n.m.
Pre-tax profit 683 582 +17
Corporate Income Tax -433 -355 +22
Net profit 250 227 +10
Employees (30.06.) 120,570 116,010 +4
Investments 13,441 1,396 n.m.
Mannesmann increased its sales by 7 percent to Euro 9.7 bn. Investments
reached the very high level of Euro 13.4 bn due to the considerably increased
activity in Telecommunications, mainly the acquisition of the majority stakes
in Omnitel and Infostrada.
Mannesmann now confirms its forecast given in May of a further improvement
in the result of ordinary activities for the full year 1999. This improvement
mainly results from a profit increase in Telecommunications due to the
continued strong growth of mobile telecommunications, increases in the stakes
in Omnitel and Infostrada to majority interests as well as the higher result
in Engineering. This mainly stems from an improvement at Demag Krauss-Maffei.
Mannesmann Rexroth will not achieve the high level of previous year's result.
As stated before, Mannesmann expects a profit decrease in Automotive and a
negative result in Tubes due to the negative market development.
The EBITDA will be significantly higher in 1999 than for last year. The
acquisitions in Telecommunications of the first half of 1999 resulted in high,
non tax-deductible goodwill-amortization. Therefore, the arithmetical tax
rate corresponding to the ratio of corporate tax divided by pre-tax profit
will clearly increase over the course of the year. As a result, the net
profit will not reach last year's level.
Important events
By acquiring majority interests in the mobile telecommunications company
Omnitel (55%) and the fixed-line operator Infostrada (100%), Mannesmann
significantly expanded its leading position as a competitive, integrated
telecommunications provider in Europe. Both companies will be integrated in
the Telecommunications sector as new divisions. In the first half, they are
included in the consolidated financial statements at equity. In the second
half of 1999 they will be fully consolidated. O.tel.o, which has been
acquired by Mannesmann Arcor at the end of May 1999 is already included in the
Arcor numbers since June 1st, 1999.
As a consequence of these acquisitions, Mannesmann's net debt position
amounted to Euro 10.9 bn at the end of June 1999.
In May, Mannesmann has issued a Eurobond with a volume of Euro 3 bn to
finance the strong growth in Telecommunications. At that time, the corporate
bond was considered the largest on the Euro market and was very well received.
At the end of June, another bond (floating rate note) with a volume of
Euro 1 bn was successfully issued.
During the first half of 1999, Mannesmann was once again one of the top
performers among the German and European blue chips. As in 1998, Mannesmann
ranked first in the DAX index and third in the Euro STOXX 50 with a share
price increase of about 55% since the beginning of the year.
In the first six months of 1999, Mannesmann systematically continued its
portfolio optimisation policy. In Engineering and Automotive, entities with a
sales volume of more than Euro 300 m were divested. The latest important step
was a reduction of Demag Krauss-Maffei's stake in Krauss-Maffei Transport
Technology from 75% to 25% in favour of Siemens, which now holds a 75%
interest in the company.
Order intake in Engineering
At Euro 3.4 bn, order intake in the Engineering sector was 2% below last
year's level in the first six months of 1999. While long-term projects were
significantly up by 20%, the serial business was on the decline (- 7%). At
Mannesmann Rexroth, the order intake for Rexroth Hydraulics and Rexroth Mecman
decreased by 9% and 12% respectively. Rexroth Star (- 7%) was affected by the
weaker demand in Europe and North America.
On a comparable basis, Mannesmann Dematic boosted its order intake by 13%.
The 36% increase at Systems was due to a stronger demand abroad. Components
as well as Cranes and Handling Equipment improved their order intake through
the inclusion of new foreign companies by 2% and 4% respectively. Compared to
the same period last year, Mobile Cranes undercut its order intake by 12%. At
Mannesmann Demag Krauss-Maffei, the order intake decreased by 11% on a
comparable basis. Mannesmann Plastics Machinery and Compressors experienced
declines of 5% and 29% respectively, which were mainly due to market
uncertainties.
Jan.- Jan.- Change
June June
ORDERS RECEIVED 1999 1998 %
Engineering Euro m Euro m
Serial business 2,533 2,732 -7
Long-term projects 872 725 +20
Rexroth 1,287 1,370 -6
Dematic 1,329 1,115 +19
Demag Krauss-Maffei 821 986 -17
./. Intercompany sales 32 14 +129
Total 3,405 3,457 -2
Sales
In the first six months of 1999, Mannesmann increased sales by 7% to
Euro 9.7 bn on a comparable basis. Especially the Telecommunications sector
contributed to this development and was also responsible for the entire
domestic growth (+ 15%).
Engineering Sales Reached Last Year's Level of Euro 3.1 bn.
The sales decline at Mannesmann Rexroth was particularly strong at the
foreign companies (- 5%). Rexroth Indramat increased sales by 13%, while all
other business units were unable to achieve the sales volume of the first
six months of 1998. Rexroth Hydraulics (- 7%), Lohmann + Stolterfoht (- 5%)
and Rexroth Star (- 4%) posted the largest declines.
Adjusted for the first time consolidation of the new companies Postal
Automation Systems (France), Colby Packaging (Australia), Donati Sollevamenti
(Italy), Slany (Czech Republic) and Protomark (United States), sales at
Mannesmann Dematic rose by 4 %. On a comparable basis, Systems increased its
sales volume by 6% and Mobile Cranes improved by 11 %, while Cranes and
Handling Equipment were only slightly above last year's level.
Adjusted for the deconsolidated business units, Mannesmann Demag
Krauss-Maffei exceeded last year's sales by 4%. Sales at Mannesmann Plastics
Machinery and Compressors decreased by 1% and 7% respectively. Transport
Technology, in which Mannesmann now only holds a 25% interest, and the
companies now sold, Dorr-Oliver and First Light Technology, are no longer
included in the figures for the first half of 1999.
Jan.- Jan.- Change
June June
SALES 1999 1998 %
Euro m Euro m
Rexroth 1,234 1,284 -4
Dematic 959 875 +10
Demag Krauss-Maffei 926 948 -2
Engineering* 3,085 3,071 0
VDO 1,788 1,641 +9
Sachs 1,088 1,109 -2
Automotive* 2,873 2,747 +5
D2 2,280 1,699 +34
Arcor 541 411 +32
Eurokom 6 1 +500
Telecommunications* 2,809 2,099 +34
Tubes & Trading 978 1,238 -21
Other Companies 84 68 +24
Total 9,829 9,223 +7
./.Intercompany sales
between sectors 88 98 -10
MANNESMANN 9,741 9,125 +7
Domestic sales 5,029 4,361 +15
Foreign sales 4,712 4,764 -1
* Sectors consolidated
VDO was responsible for the sales increase (+ 5 %) in the Automotive
sector.
During the first six months of 1999, Mannesmann VDO benefitted from the
continued positive development in the automotive markets. Adjusted for the
consolidation of the new companies Car Audio Electronics (China), Lucas
Kienzle (Great Britain) and VDO Halla (Korea), sales increased by 5%. With
the exception of Information Systems Commercial Vehicles (- 6%), all business
units exceeded last year's figures. Cockpit Systems (26%) and Fuel Systems
(15%) showed the strongest growth.
Sales at Mannesmann Sachs were slightly below last year's level (- 2%).
Increases at Torque Converters (+ 35%) and Rubber Metal Parts (+ 5%) were
offset by decreases in the original equipment business for shock absorbers
(- 6%) and clutches (-16%).
In Telecommunications, Mannesmann D2 increased its sales by 34% to about
Euro 2.3 bn compared to the previous year. This puts average monthly revenues
(incl. terminals business) at about Euro 58 per subscriber. Until the end of
June 1999, Mannesmann D2 had grown its subscriber base to approx. 7.3 million.
During the first six months of 1999, Mannesmann D2 achieved an average net
growth of about 220,000 subscribers per month, which represents a 24% increase
over the same period last year. The churn rate (12-month average) amounted to
approx. 12%.
In the second quarter of 1999, D2 subscribers further benefitted from
tariffs decreases. On April 1, 1999 and on May 1, 1999, rates for the prepaid
tariff D2-CallYa as well as those for the high-usage tariffs D2-ClassicPremium
and D2-Classic were reduced significantly. In addition, as of May 1999,
tariffs for D2-Fun customers became more attractive. Rates for the tariff
option D2-BestCitySpecial were reduced to DM 0,29 around the clock. With the
introduction of the new tariff option D2-BestWeekend, D2-customers pay again
only DM 0,29 around the clock for domestic calls at weekends and public
holidays.
The explosive growth in messages sent with the SMS (Short Message Service)
continued in the first six months of 1999. During the month of June, D2
subscribers sent about 145 million messages. Since the end of 1998, the
message volume more than doubled (+ 140%).
The mobile internet access D2-WAP, which was presented at this year's
CeBIT; is planned to be available for D2-customers from September 1999
onwards. For this product, Mannesmann D2 has already won attractive
co-operation partners such as Yahoo!, the leading internet search engine in
the German-speaking World Wide Web, and important media companies like the
business newspaper Handelsblatt. In the first half-year 1999, international
roaming was available in 84 countries world-wide.
Mannesmann Arcor significantly strengthened its market position as the
leading private competitor by acquiring o.tel.o's fixed-line operation. Sales
increased by 32% to Euro 540 m. In June 1999, the call volume of Arcor and
o.tel.o reached about 37 million minutes per working day.
With its new tariff package Arcor sunny, Mannesmann Arcor lowered its
telephone rates as of August 1, 1999. For a monthly fee of DM 9.90, prices
for long-distance calls are cut by up to 40%. At DM 0.39 per minute after
6 p.m., telephone calls into the D2-network will be especially favourable. As
of July 15, 1999, Arcor also cut its rates for Arcor-Call by Call. During
leisure time, for example, a domestic long-distance call will only cost DM
0.08 per minute (- 16%). Mannesmann o.tel.o, which will concentrate on
expanding the private customer business in the future, also significantly
reduced its domestic and international rates. In the future, the 100 % Arcor
subsidiary germany.net will be responsible for the development of online
services. With more than 900,000 users, Arcor currently handles a strongly
increasing Internet volume (e.g. Arcor -- Internet by Call, o.tel.o
online 0 10 11, Free Internet).
In July 1999, Mannesmann Arcor and Deutsche Bahn agreed on a co-operation
to build and operate a digital mobile phone network for the railways
operations in Germany. The total volume of the contract is Euro 1.5 bn.
Mannesmann Arcor will be the general contractor for the project and is
responsible for the planning and building of the GSM-R Network (Global System
for Mobile Communications-Rail). Once again, this project shows the high
competence of Arcor as leading full range provider within the
telecommunications market.
Mannesmann Eurokom continued to focus on the development of new markets
and market segments in European mobile and fixed-line telecommunications.
Mannesmann acquired Olivetti's stake in OliMan for a purchase price of
about Euro 7.6 bn. Thereby, Mannesmann increased its interest in the Italian
mobile telecommunications company Omnitel Pronto Italia (OPI) to about 55% and
its interest in the Italian fixed-line operator Infostrada to 100%. Both
companies will be integrated in the consolidated financial statements for the
second half of 1999.
During the first six months of 1999, sales at Omnitel Pronto Italia almost
doubled to Euro 1.6 bn. The EBITDA significantly improved to about
Euro 670 m. At a penetration rate of 41%, the number of subscribers increased
to about 7.9 million by the end of June. As in the first three months of the
year, OPI's average market share of net customer growth stayed at 44% for the
second quarter. The new internet portal Omnitel 2000 (http://www.2000.it),
which subscribers can access from a mobile telephone through WAP technology as
well as via voice recognition and from a fixed-line telephone or the internet
was very successfully launched in the Italian market. At first, more than
150 different services such as business news, travel and traffic services can
be accessed in this way.
In the first six months of 1999, Infostrada boosted its sales to about
Euro 324 m. By the end of June, the company already had about 2 million
telephony customers and 260,000 Internet subscribers, which corresponds to
increases of 126% and 135% respectively, since the beginning of the year.
With the introduction of free Internet access with no basic fee, Infostrada
has become a leader in the areas of web services and e-commerce in the Italian
market.
The French mobile telecommunications company SFR increased its subscriber
base to about 5.2 million by the end of June. Cegetel 7 and Cegetel
Entreprises raised the number of activated telephone lines to about
1.2 million.
tele.ring, which had been successful in the Austrian fixed-line business
so far, began setting up a mobile network after receiving the fourth mobile
telecommunications license for Austria. The start of operations is scheduled
for the first half of 2000.
In the Tubes sector, almost all business units experienced decreasing
sales.
The largest declines were reported by Mannesmann Brazil (- 48%), the
trading business of Mannesmann Pipe & Steel Corporation in the United States
(- 36%) and Vallourec & Mannesmann Tubes (-36 %). Large-diameter tubes and
pressfittings achieved last year's sales level.
Employees
At the end of June 1999, the Mannesmann Group had 120,570 employees. This
4% increase is mainly due to further changes in the scope of consolidation.
At Dematic, the 15% increase resulted mainly from the inclusion of further
foreign companies. The number of employees at Rexroth decreased by 2%. The
10% reduction at Demag-Krauss-Maffei was mainly caused by deconsolidations.
In Automotive, the increase in the number of employees (+ 5%) was due to
new recruitment at VDO as well as the first-time consolidation of the
companies Car Audio Electronics (China), VDO Halla (Korea), Lucas Kienzle
(Great Britain) and Sachs Automotive (Mexico).
Telecommunications increased its figures mainly through an increase at
Arcor (+ 43%) due to the acquisition of o.tel.o. The employees at Omnitel and
Infostrada are not included in the half-year numbers.
In the Tubes sector, adjustments in Brazil led to a decrease of 15%. The
6% increase in personnel expenditure was mainly caused by increases in the
number of employees as well as increased wages and social security payments.
Furthermore, exchange rate fluctuations were noticable.
June 30, June 30, Change
EMPLOYEES 1999 1998 %
Rexroth 20,575 20,889 -2
Dematic 14,557 12,643 +15
Demag Krauss-Maffei 10,155 11,268 -10
Engineering 45,287 44,800 +1
VDO 24,681 22,977 +7
Sachs 20,259 19,937 +2
Automotive 44,940 42,914 +5
D2 7,369 6,476 +14
Arcor 9,218 6,467 +43
Eurokom 540 246 +120
Telecommunications 17,127 13,189 +30
Tubes & Trading 11,549 13,531 -15
Other Companies 1,667 1,576 +6
MANNESMANN 120,570 116,010 +4
Domestic companies 74,493 71,244 +5
Foreign companies 46,077 44,766 +3
Investments
About Euro 13 bn (96%) of the very high investment volume for the first
half of 1999 was used for the expansion of European telecommunications
activities.
The largest individual sum resulted from raising Mannesmann's interest in
Omnitel and Infostrada as well as the acquisition of CCIL (an addition of
Euro 10.3 bn in fixed assets incl. goodwill). The significant increase at
Arcor was especially caused by the inclusion of o.tel.o and the acquisition of
stakes that were previously held by AT&T and Unisource.
The decrease in Automotive investments is due to the special effects of
the acquisition of Philips Car Systems (VDO) and Aralmex (Sachs) during the
previous year.
Jan.- Jan.- Change
June June
INVESTMENTS 1999 1998 %
Euro m Euro m
Rexroth 45 98 -54
Dematic 124 36 +244
Demag Krauss-Maffei 25 29 -14
Engineering 194 163 +19
VDO 132 556 -76
Sachs 85 134 -37
Automotive 217 690 -69
D2 251 182 +38
Arcor 2,122 202 +951
Eurokom 10,593 82 n.m.
Telecommunications 12,966 466 n.m.
Tubes & Trading 25 55 -55
Other Companies 39 22 +77
MANNESMANN 13,441 1,396 n.m.