 Dear Shareholders and Friends of MVV Energie AG,
The MVV Energie Group succeeded in maintaining its course of profitable and sustainable growth in the 2005/06 financial year. The positive performance of the Group is reflected in the very pleasing rate of growth in all of our key earnings figures. This has been achieved in spite of a difficult climate in the energy industry and a high level of one-off charges relating in particular to impairment tests. We can report pleasing results – the measures we have taken to realign our strategy and to enhance our efficiency have borne fruit. We have sharpened the focus of our group of companies, strengthened it in financial terms and enhanced its profitability, thus meeting our target of generating a level of return suitable to the capital market for the first time once again in the 2005/06 financial year.
The strategic progress and improvement in operating earnings figures achieved by our group of companies has also been honoured by the capital market. This is reflected in the performance of the share of MVV Energie AG. At Euro 23.23, our share price as of 30 September 2006 was 20% higher than the closing price in the previous year. We intend to enable our shareholders to participate in this success. The Executive and Supervisory Boards will propose an increase in the dividend for the 2005/06 financial year to Euro 0.80 per share for approval by the Annual General Meeting of MVV Energie AG. A dividend of Euro 0.75 cents per share was distributed last year for the 2004/05 financial year.
This Annual Report informs you about the course of a difficult, but nevertheless highly successful year. By raising our forecasts in January 2006, we set ourselves ambitious targets for 2005/06. We aimed to achieve sales of Euro 2.25 billion and operating earnings before interest and tax (EBIT) of Euro 195 million in the year under report. We surpassed these targets – the sales of the MVV Energie Group rose to Euro 2.28 billion and operating earnings (EBIT) to Euro 201 million. These are our best earnings figures since our stock market flotation in 1999, with the exception of the 2002/03 financial year, which included a high level of one-off income resulting from the sale of shares in Gasversorgung Süddeutschland GmbH (GVS). Compared with the previous year, our sales improved by 16% and our operating earnings (EBIT) even grew by 27%. After deducting interest, tax and minority interests, our annual net surplus of Euro 50 million was 79% higher than the equivalent annual surplus of Euro 28 million reported in the previous year.
Successful course maintained
Operations at our companies were not yet affected during the 2005/06 financial year by the entry into force of any grid fee approvals. In view of the cost decisions due to be received from the regulatory authorities, however, we were obliged to undertake a high volume of write-downs as a result of impairment tests. We achieved our ambitious earnings forecasts in spite of these one-off charges, thus demonstrating that our group of companies is now in good shape.
The main reasons for our pleasing earnings performance in 2005/06 are to be found in the dynamic development of our high-growth environmental energy segment and the success of our cost-saving measures. Moreover, the colder weather conditions during the 2005/06 heating period led to volume growth in our district heating and gas businesses. Our electricity and gas prices had no notable impact on our earnings growth. As announced at the beginning of 2006, the MVV Energie AG parent company refrained from raising its private customer rates any further before the end of the 2005/06 financial year in spite of the further increase in procurement costs. The electricity price increases submitted by our shareholdings in Offenbach and Solingen were declined or reduced by the authorities.
Growth drivers: environmental energy and energy-related services
The performance of the environmental energy segment exceeded our own targets. Segment earnings rose by Euro 41 million to Euro 68 million. This sharp growth in earnings is chiefly due to initial sales at the new non-recyclable waste incineration plant in Leuna and to increased waste deliveries following the entry into force of the Technical Guidelines for the Disposal of Municipal Solid Waste (TASi) on 1 June 2005. Moreover, sales were also positively affected by improved capacity utilisation rates at our plants and the increase in commercial waste prices since the introduction of the TASi guidelines. Municipal waste disposal prices, including those in the Rhine/Neckar metropolitan region, remained constant.
Our assessment of developments in the waste disposal market has proven to be correct and has enabled us to achieve a superb position in this market, with the timely introduction of new structures and expanded waste incineration capacities. Our second waste incineration plant in Leuna will take up operations in the autumn of 2007. In view of the great demand for incineration capacities in the waste market, we expect prices for the incineration of industrial and commercial waste to remain high in subsequent years as well. Given that we only invest in new disposal capacities in cases where their utilisation is secured by long-term contracts, we can expect to see pleasing levels of capacity utilisation in the coming years as well.
We also made considerable progress in our second high-growth segment, energy-related services, during the year under report and laid important foundations for growth. In line with the resolution adopted by the 2006 Annual General Meeting, the energy-related services division was spun off to MVV Energiedienstleistungen GmbH, a wholly-owned subsidiary of MVV Energie AG, with effect from 1 October 2005. Starting in the 2006/07 financial year, our group of companies will provide all utility and infrastructure services required by the industrial park in Gersthofen near Augsburg. From mid-2008, following the construction of an industrial power plant, we will also supply the production location of Continental AG in Korbach with process steam and electricity. One further milestone was the takeover of IVB Immobilien Versorgung GmbH Berlin and the successful establishment of the joint venture e:duo GmbH together with the German subsidiary of ista International GmbH, the world’s leading heating cost invoicing company. Our energy-related services and contracting business has therefore succeeded in gaining a foothold in the real estate and housing market.
Efficiency enhancements across the Group
A further major focus during the 2005/06 financial year involved achieving sustainable improvements in our earningspower by means of efficiency enhancements and measures to optimise processes and reduce costs in the administration and technical facility management divisions at our Mannheim location. The professionalisation and expansion of our procurement network, coupled with process improvements and the exploitation of further synergies in cooperation with our municipal utility shareholdings, also enabled us to achieve considerable cost savings in the past financial year. The current cost-saving programmes are also being consistently implemented at our other locations. The programmes already implemented and those newly initiated will take full effect in terms of personnel costs in the coming years.
We will maintain our efforts and continue to focus on enhancing the competitiveness of our group of companies in the 2006/07 financial year. Our ability to maintain our economic success in spite of increasingly intense price competition is dependent on our achieving efficiency enhancements and cost savings in all of our core business processes.
It is also for this purpose that we are pooling internal services which were previously organised separately at the MVV Energie AG parent company and the shareholdings. The establishment of a total of five intra-group shared service companies, which largely began operations at the beginning of the new 2006/07 financial year, will enable us to further raise the effectiveness of our group of companies.
In addition to its organic growth, the MVV Energie Group is also pursuing a clear strategy of external growth. By acquiring further shareholdings in municipal utility companies and in companies operating in the environmental energy and energy-related services segments, we aim to strengthen our position in the market and to exploit opportunities for achieving profitable growth in future as well. We believe that unbundling, regulation and possible additional legal requirements will profoundly change the existing structures in the German energy industry, thus significantly increasing the need for mergers and cooperation between companies. This is particularly true for a large number of municipal utility companies, which will be on the lookout for a strong partner in view of the downturn in earnings in their electricity and gas distribution businesses resulting from grid regulation. In the long term, municipal utility companies will only be able to benefit from economies of scale and achieve cost savings by cooperating with each other. We intend to actively exploit the consolidation expected in the municipal utility market. The value-driven management of municipal utility companies on a basis of partnership has become one of our core competencies. In view of current antitrust restrictions on the four largest energy groups in Germany and our proven track record of successful cooperation, we see good prospects for welcoming further municipal utility companies into our network in the coming years.
Capital increase planned
We intend to obtain the capital required for our company’s external growth by means of the capital increase planned for the first half of 2007. The 2005 Annual General Meeting authorised us to increase our capital by up to 30%. Following the capital increase of just under 10% on 15 November 2005, we still have authorised capital of 18.2% at our disposal, which we intend to furnish with subscription rights. The Supervisory Board of MVV Energie AG has commissioned the Executive Board to undertake all necessary preparations for this capital increase.
We also see potential for further international growth. We are very satisfied with the performance of our subsidiaries in the Czech Republic. We are currently examining some interesting investment opportunities, especially in the field of district heating, both in this country and in neighbouring Slovakia. The Polish energy market, by contrast, is undergoing a period of stagnation as a result of the political framework having become more difficult.
Strong foundations for the future
All of the companies in the MVV Energie Group achieved a very great deal during the 2005/06 financial year. The implementation of the savings measures has required a large number of individuals to accept changes and in some cases cutbacks. Throughout this process we have fulfilled our social obligations and have accorded absolute priority to implementing all of the measures involved in a socially responsible manner. The Executive Board of MVV Energie AG would like to extend its heartfelt thanks to all managers, employees and employee representatives at the companies within our Group for their sense of responsibility, their commitment and their willingness to accept change.
We also offer our thanks to our shareholders for the trust they placed in us in the past 2005/06 financial year. We believe that our group of companies is very well positioned to face the difficult new phase of regulated competition and are convinced that we have laid good foundations for the MVV Energie Group to achieve further profitable growth. With this in mind, we would be very pleased if you were to continue to place your trust in us in the current financial year as well.
With kind regards.
Yours faithfully,
Dr. Rudolf Schulten
CEO |
