ANNUAL REPORT

LETTER TO SHAREHOLDERS AND BUSINESS REVIEW
Plummeting sales and delayed cost rationalization result in standstill agreement
Starting in August, 2008, and reaching its full scale towards the
end of the calendar year 2008, the crisis in the European
automotive industry caused HIT’s revenue to decrease from EUR
878.2 million during the fiscal year ended March 31, 2008, to
EUR 713.4 million for the fiscal year ended March 31, 2009. The
revenue for the fiscal year ended March 31, 2009 included EUR
50.2 million from Tafime, acquired in December 2007. Excluding
Tafime for both fiscal years, revenue decreased by 29.8 %.
HIT’s operating subsidiaries, hereafter collectively referred to as
Honsel, were unable to adjust their variable costs quickly
enough to adjust to the rapidly declining order volumes, and
incurred higher than expected labor costs resulting from delays
in the implementation of its restructuring program
“Plan4Growth”. As a result, gross profit amounted to EUR 9.5
million for the fiscal year ended March 31, 2009, compared to
EUR 79.7 million during the previous fiscal year. In addition to
the effects of declining demand and unachieved labor savings,
increasing costs of energy, maintenance and waste disposal
caused EBITDA, adjusted for EUR 49 million of non-recurring
restructuring and other costs, to decrease from EUR 87.1
million for the fiscal year ended March 31, 2008, to EUR 13.9
million for the fiscal year ended March 31, 2009. Given the
significantly deteriorated financial performance and the
continuing weak economic outlook, HIT recorded an impairment
loss on certain intangible assets and goodwill for the fiscal year
ended March 31, 2009 of EUR 199 million. As a result of the
under-utilization of certain manufacturing equipment, EUR 46.6
million impairment losses were recognized on tangible assets.
Excluding all impairment losses, the operating loss for the fiscal
year ending March 31, 2009, amounted to EUR 109.2 million,
compared to an operating loss of EUR 2.9 million a year earlier.
The net loss for the fiscal year ended March 31, 2009, increased
to EUR 358.4 million, compared to EUR 39.7 million for the fiscal
year ended March 31, 2008. On December 29, 2008, HIT reached
several agreements in view of the liquidity shortfall that resulted
from collapsing demand. HIT’s lenders agreed to a standstill,
originally until March 31, 2009, but extended twice and currently
still in place. Furthermore, certain of HIT’s main customers
provided for additional liquidity and compensation for reduced
volumes. Finally, the Company provided a financing facility up to
EUR 20 million, in the form of factoring - and sale and lease
back arrangements.
Proposed capital restructuring designed to allow Honsel to overcome the economic crisis and confirm
its position as a key supplier of light metal components to the automotive industry
During the standstill, the Company and a committee of HIT’s
senior lenders agreed to a capital restructuring proposal that
was approved by HIT’s lenders on May 25, 2009 and completed
on July 22, 2009.
As part of the restructuring, the Company invested EUR 50
million in exchange for a controlling 51% stake in Honsel. The
remaining 49% of the group is held by Honsel’s former senior
term lenders following a debt-for-equity swap, which resulted in
HIT’s and Honsel’s total outstanding secured term debt of
approximately EUR 510 million being reduced to EUR 140
million, consisting of EUR 110 million senior term loan and EUR
30 million mezzanine term loan, all of which is held by Honsel’s
former senior term lenders. Honsel’s other existing funding
arrangements, including its EUR 40 million revolving credit
facility, its EUR 20 million of factoring and leaseback financing
from RHJI and EUR 30 million from certain of Honsel’s key
customers and suppliers, will remain in place.
In the event that Honsel would not be able to secure the
financing of potential future liquidity needs, the Company further
committed to a new secured backstop facility of EUR 10 million.
Following the capital restructuring, the shares of Honsel are no
longer held by HIT, but by a newly created holding company,
Shelon Holdings Sarl, registered in Luxembourg, in which the
Company holds 51 %.
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