 Dear Shareholders and Friends of MVV Energie AG,
MVV Energie is steering a successful course. We achieved a great deal in the past 2004/05 financial year, both in terms of our strategy, as well as in our operations. Over the past two years, we have provided the MVV Energie Group with a new strategic orientation and structure and streamlined the business by consistently removing loss-making operations. This enabled us to achieve a significant improvement in the operating earnings power of the MVV Energie Group in the 2004/05 financial year. This is true of our solid core business – the distribution of electricity, district heating, gas and water. However, we have also succeeded in raising profitability levels in our newly restructured growth fields of energy-related services and especially in the environmental energy segment, which includes the incineration of non-recyclable waste and the biomass business. It is in these non-regulated business fields in particular that our group of companies sees excellent market opportunities.
Targets reached
We are very satisfied with what we have achieved. At Euro 2 billion, our sales for the 2004/05 financial year were in line with our target. With operating earnings (EBIT) of Euro 158 million, we even succeeded in surpassing the targeted level of Euro 150 million. Compared with the previous year’s figure of Euro 97 million (following adjustment for one-off items relating to the streamlining of the portfolio and to impairment tests), we have thus achieved operative improvements of Euro 61 million. Following the deduction of interest, taxes and minority interests, we have reported an annual net surplus of Euro 34 million, compared with an adjusted annual net surplus of Euro 12 million in the previous year. The Executive Board of MVV Energie AG will therefore once again be proposing the payment of an attractive dividend of Euro 0.75 per share for approval by the Annual General Meeting on 10 March 2006. In contrast to previous years, we are now in a position to fund the dividend in full from our free cash flow.
Our positive earnings performance is primarily a reflection of the first full-year consolidation of the Stadtwerke Kiel AG subgroup, as well as of the successful completion of the streamlining of our portfolio. Not only have our measures taken effect – they are also being honoured by the capital markets. At Euro 19.29, our share price as of 30 September 2005 was 34 % up on the closing price at the end of the previous year. Our shareholders have thus achieved an above-average dividend yield of 3.9%.
Efficiency and earnings power strengthened
This Annual Report for the 2004/05 financial year documents the clear strategy of focused and earningsdriven growth chosen by the MVV Energie Group. One of our main focuses in the past financial year was on raising our efficiency and earnings power. To enable us to maintain our success as an independent and autonomous company in the phase of regulated competition, we launched our “FOKUS” efficiency enhancement programme in Mannheim in early 2005 and pressed ahead with preparing the measures involved. In July 2005, the Executive Board reached agreement with the Works Council of MVV Energie AG as to how the jointly compiled savings measures are to be implemented. By the 2007/08 financial year, MVV Energie AG aims to reduce its annual material and personnel expenses by up to Euro 29 million at the Mannheim location. Around two thirds of these savings are already expected to take effect in the current 2005/06 financial year. We have been obliged to make some cuts to be able to reach these savings targets. For this reason, we have accorded high priority to ensuring that the measures involved are undertaken in a socially responsible manner. Our management, employees and company representatives have demonstrated a high degree of flexibility and willingness to change during the more difficult stages of this efficiency enhancement programme. The same is true of our shareholdings, which have also been making great efforts to improve their competitiveness. The Executive Board of MVV Energie AG would like to extend its heartfelt thanks to all employees of the companies in the Group for their sense of responsibility and their commitment. We will be maintaining our efforts to achieve further improvements and to become even more competitive.
Utility company network – a solid foundation
One important foundation of the earnings and growth of the MVV Energie Group is its network of municipal utility companies, which has gradually been expanded over the past years by the acquisition of profitable shareholdings. In addition to MVV Energie AG, this network of municipal utility companies in Germany includes the energy suppliers or municipal utility companies in Kiel, Offenbach, Ingolstadt, Solingen and Köthen. These are supplemented by ten shareholdings in municipal district heating companies in Poland and the Czech Republic. The horizontal networking of municipal utility companies, which have the same core business and stable end customer potential, provides our profitable growth with a solid basis.
We aim to achieve even greater levels of cohesion between the companies in our network and to expand further into economically attractive regions as and when suitable opportunities arise. The regulation of grid prices resulting from the amended Energy Act will lead to a further intensification in the level of competition. According to industry experts, the expected pressure on efficiency levels will result in privatisations and, given the desolate state of municipal finances, to a rise in the number of municipal utility companies put up for sale. In view of its position as a successful and experienced municipal utility group with access to the capital markets, we see the MVV Energie Group as having good prospects for benefiting from any consolidation of municipal utility companies and for achieving external growth through the acquisition of further shareholdings. Other forms of partnership and cooperation between operating units are also increasingly coming to the forefront. The talks regarding a closer degree of cooperation between MVV Energie AG and Mainova AG in Frankfurt am Main have come to a halt for the time being – not least for political reasons. However, no bridges have been burnt as yet. The economic arguments and the expected pressure on margins in the regulated energy market favour closer cooperation and company mergers.
Ambitious targets for 2005/06
We aim to consistently maintain our organic growth in the 2005/06 financial year. Our targets are ambitious – we intend to increase our sales to Euro 2.2 billion, our EBIT to Euro 185 million and our earnings before tax to Euro 123 million. Moreover, we intend to generate a positive free cash flow once again, as well as covering our capital costs in full for the first time in several years. The principal earnings drivers are the expected cost savings from the “FOKUS” efficiency enhancement programme and the planned improvement in operations in the non-regulated segments of district heating and environmental energy, as well as in our energy-related services.
Capital increase successfully executed
On 15 November 2005, we successfully executed the capital increase previously announced. This involved issuing 5 million new shares at a price of Euro 18 each and placing them among a wide range of German and European institutional investors. Given the high level of interest both in Germany and abroad, the shares were placed within just a few hours. We see this as providing a confirmation of our positive acceptance on the capital markets. This measure has increased the value of our company to Euro 1 billion and the percentage of freely traded shares from 12% to 19%. We will be channelling the proceeds from the capital increase in particular into the profitable growth of our environmental energy and valueadded service segments.
The strategic realignment, the streamlining of the portfolio and the efficiency enhancement programme in Mannheim mean that we have laid the foundations for greater profitability and for a sustainable increase in the value of our company. We have proven that with realistic budgeting, professional controlling and the consistent raising of our efficiency we are able to actually meet ambitious targets. In the current 2005/06 financial year, we will continue to direct all of our energies into retaining and justifying the trust placed in our company by our shareholders.
With kind regards.
Yours faithfully,
Dr. Rudolf Schulten
CEO |
