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Q1 2008 Duerr AG Earnings Conference Call - Final.

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Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day ladies and gentlemen and welcome to the Duerr AG interim report first quarter 2008 conference call. For your information today's conference is being recorded. Please pay attention to the disclaimer on page two of the PowerPoint presentation relating to this conference call. At this time I would like to turn the conference over to Mr. Ralf Dieter CEO. Please go ahead sir.

RALF DIETER, CEO, DUERR AG: Thank you good afternoon ladies and gentlemen this is Ralf Dieter speaking. I would like to welcome you to today's conference call on the results for Q1 2008 and also on behalf of my colleague Ralph Heuwing who is with me here today.

Let me start with the highlights of the first three months. Incoming orders developed very well with EUR518 million. This is an increase of 16% compared to the average of the last four quarters and it's even slightly above last year's very high figure of Q1. Order backlog rose to more than EUR1.2 billion and our visibility increased further with order backlog equivalent to over nine months' sales. With EUR10.4 million EBIT, more than trebled in Q1. Net result, cash flow and free cash flow were positive for the first time since [years]. J

Just to remind you Q1 is usually the weakest quarter during our fiscal year. Our outlook remains positive and our project pipeline shows no signs of weakening.

I would like to move now to page three. Let's have a closer look at incoming orders. Orders were up 1.9% compared to the very high level of Q1 2007. Measuring and process systems was the main contributor with growth of 25.5% with orders worth EUR384.4 million, paint and assembly systems came close to matching its very high Q1 2007 order intake. That means EUR403.7 million last year in the first quarter.

Looking ahead to the forthcoming quarters, we continue to be optimistic, strong demand especially in Asia and Eastern Europe promises an ongoing positive development of incoming orders. Sales in the first quarter of 2008 were up 17.1% to EUR357 million. Almost all business units achieved double-digit rates of growth. The 16% weaker US dollar compared with the first quarter of 2007 impacted sales revenues negatively by about 3%. Orders on hand amounted to EUR1.210 million at the end of March which is an increase of 12% compared to the end of 2007. In most of our business units and regions we have a high utilization until Spring next year.

On page four please, you all know that due to the nature of or business we have to be cautious when comparing one quarter to another. Nevertheless we have prepared this slide to give you an idea for order development in selected countries and regions. So far Asia has been the most important growth region in 2008 accounting for roughly one-third of total incoming orders. China was the biggest single market for us. In terms of sales, Europe was the strongest region in Q1 with a share of 58%. Asia contributed 20% and North and South America 22%.

On page five you see the contribution and the growing importance of our emerging markets business. In our definition, emerging markets include Eastern Europe, Mexico, Brazil and Asia without Japan. Nowadays we generate about 50% of our business in this market. This definitely underlines our strong market position in these growth regions of the automobile industry.

On page six we also sharply increased our workforce in the emerging markets. In 2003 we had 12% of our employees in those markets, today already more than 20% and this trend will continue. Until the end of 2010 we plan to have at least 22% of our workforce there, maybe even up 25%. So much from my side as an introduction and Ralph Heuwing is now taking over with the profit and loss statement, Ralph.

RALPH HEUWING, CFO, DUERR AG: Yes thank you. Good afternoon ladies and gentlemen. Let's turn to page seven. Our cost of sales increased by 16.6% and that's less than proportionally compared to our sales revenues. So the growth margin rose from 16.6% to 17%. This is a result of our ongoing process improvement initiative. Additionally we benefit from higher quality orders on hand which applies for both divisions.

Administrative and selling expenses which were up 3.5 percentage points also rose much less strongly than sales revenue. As a result the ratio of administrative and selling expenses to sales fell from 14.5% to 12.9%. The net balance of other operating income and expenses was about EUR1.3 million after EUR2.5 million in Q1 2007. Here currency translation gains and losses were by far the biggest sector. On balance, currency translation effects resulted in an income of EUR2.2 million.

As already mentioned, EBIT clearly improved and came to EUR10.4 million after EUR3 million on the same quarter last year. The interest result improved by EUR1.2 million to minus EUR4.4 million. This was mainly due to the lower average net debt, based on an effective tax rate of just under 30%, earnings after tax were EUR4.5 million in the first quarter of 2008. A marked improvement on the net loss of EUR2.1 million in the first quarter last year.

I'm turning to page eight now. Cash flow from operating activities improved to EUR21 million as compared to minus EUR9 million last year. I want to point out here that the positive development we saw in the fourth quarter of 2007 was sustained also in Q1 2008. The contributing factors were the better revenue situation and the further reduction of EUR26 million in net working capital versus the end of 2007.

Prepayments received, recognized as liabilities, rose by EUR50 million worth at the end of 2007 to EUR179 million. This includes first repayment of around EUR30 million on the BMW Spartenburg order which we received at the end of 2007. By the way there were no forfeiting transactions in the first quarter 2008, while the [factoring] volume declined by EUR5.4 million to EUR8.8 million. So if you add these up in effect the net working capital improved further by more than EUR20 million.

EUR3.7 million was invested in plant, property and equipment and intangible assets which was well below the EUR6.3 million in Q1 2007. The decline is mainly...

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