Business Report 2005 - Interseroh

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From a group point of view, the analysis revealed the following risk issues: • negative influences on earnings and market share in the services segment due to the ongoing consolidation in the waste disposal branch with larger, more comprehensive groups of waste disposal companies expected to form based on systems and raw materials; • reduced margins due to the intensification in competition in the field of transport packaging recycling; • low-margin new business; • short-term changes in relevant legal conditions in the field of packaging disposal and deposits on disposable packaging as well as legal rulings (regulatory risks); • high volatility in the prices for the fractions in which INTERSEROH trades; • increased competition in the steel and metal recycling segment due to large mergers; • developments in the steel-producing industry. Although the remaining risks may indeed become significant for the individual segments or units, they will not impact noticeably on the group as a whole. Risks that pose a fundamental danger to INTERSEROH in a broader sense or which threaten the very existence of the company are not apparent at the moment. 3. Foreseeable Development, Possible Chances and Potential Risks: New Fields of <strong>Business</strong> Unfold Their Operational Impact The estimation of the short to medium-term development of the INTERSEROH Group is based on current expectations and assumptions regarding the effects of future events and economic conditions on the operational companies. Services INTERSEROH has lost contracts with partners in two branches for which it has recycled transport packaging for many years. This will result in a drop in registration fees and raw material revenues. Due to growing competition, a significant drop in margins also had to be accepted on the extension of contracts. According to expert opinion, private consumption will grow in 2006. INTERSEROH expects the packaging volumes of its customers to remain stable. INTERSEROH will continue to acquire further self-disposal service providers in the segment of established disposal services and anticipates rising volumes and turnover in this regard. INTERSEROH is also working steadily on the development of customised solutions for new customer groups. INTERSEROH is confident it will be able to grow again in these segments. Potential risks lie in the increased price competition in the field of INTERSEROH services, which could affect profits in this segment. INTERSEROH expects a stable development in its recycling management segment with moderate growth. INTERSEROH sees growth opportunities in the current financial year and 2007 primarily in its new fields of business. Most noteworthy in this regard is the Dual System INTERSEROH (DSI) for the collection of domestic sales packaging. Following strong interest in this service among potential customers already in the year under review and conclusion of the first contracts, INTERSEROH expects a strong growth in customers as the number of rulings licensing the DSI in the individual federal states increases. However, due to the intensity of competition, the margins in this field are under pressure. A potential risk lies in the new calls for tender by Duales System Deutschland AG for waste disposal services. The current contracts run to 31 December 2006. INTERSEROH is therefore doing its utmost to obtain the outstanding rulings licensing it in the individual federal states by the time the calls for tender start in mid 2006. It is INTERSEROH’s aim to compensate the declines in earnings in the transport packaging recycling sector in part by developing higher-turnover, albeit lower-margin DSI business. The INTERSEROH deposit system is another growth field. With the elimination of the standalone solutions of the large discount stores in May 2006, a completely new market will emerge. INTERSEROH is in a position to offer all the modules necessary for the resultant services. In addition to this, the take-back obligation of the manufacturers and importers of electrical and electronic equipment has established a new service on the market. INTERSEROH also plans to generate additional turnovers and earnings in this field. The international activities will be expanded steadily especially in Eastern Europe. Operational effects are expected in the current financial year. 30
Since the services segment will continue to be characterised by increasing competition in the future as well, INTERSEROH will intensify its marketing activities further. Raw Materials Trading Potential risks exist in the volatility of raw material prices. INTERSEROH’s turnover should, accordingly, also be evaluated on the basis of the level of these raw material prices. The group-wide concentration of raw material activities on ISR INTERSEROH Rohstoffe GmbH has enabled an even more efficient bundling of volumes vis-à-vis the concentration in demand on the user side. It is expected that the overheated market for plastics will continue to cool down in 2006, with prices declining sharply. The volume of EPS (polystyrene) in 2006 will depend on the economic situation. INTERSEROH plans to expand its marketing activities to generate further volumes of plastic and wastepaper. It also intends to acquire companies and/or joint ventures. The influence on the market of the additional volumes of old wood for thermal utilisation will probably continue in 2006 following the introduction of the TASi. INTERSEROH expects stable demand from the thermal utilisation plants thanks to the commissioning of new biomass-fuelled combined heating and power stations and higher availability of the plants that already exist. The derived timber products industry in currently investing vigorously to enable substitution of residual and forest wood with old wood in chip boards. This will result in additional demand for high-quality old wood. INTERSEROH plans to invest in the expansion of its wood sites in Wuppertal and Worms. To improve regional coverage throughout Germany, it plans to buy new wood sites or expand existing ones. Together with the volumes of old wood from abroad and utilisation possibilities in foreign countries, INTERSEROH aims to expand its position as European trading platform in old wood. Steel and Metal Recycling INTERSEROH expects demand for scrap steel to remain stable in the current financial year. It sees opportunities primarily in the expansion and modernisation of its sites to improve their efficiency and in the expansion of international direct sales business. In addition to this, the group strategy aims to establish a stronger presence in the Baltic states and other countries in Eastern Europe and to find suitable sites there. Increased quantities of scrap steel are being generated in these countries due to the relocation of labour-intensive production to them. The main risks lie in the high volatility of scrap prices. Risks are also seen in the ongoing concentration of the market and in the increased expansion of capacities by competitors. Since the legal regulations for environmental protection undergo continuous change, are becoming increasingly stricter and further tightening will occur due to new EU directives, investments may become necessary in the group in the future, the amount and time of which are difficult to predict. 4. Research and Development Due to the fields of activity it is involved in, the INTERSEROH Group places a great deal of importance on market research and working of the market. INTERSEROH does not engage in research and development in the normal sense. 31
Page 1 and 2: 2005 BUSINESS REPORT INTERSEROH AG
Page 3 and 4: KEY GROUP FIGURES Group 2005 * 2004
Page 5 and 6: CONTENTS Key Figures 3 The Manageme
Page 7 and 8: undiminished resolve and work with
Page 9 and 10: Corporate Governance The Supervisor
Page 11 and 12: financial year and years before who
Page 13 and 14: 2. Business in Services Expanded; P
Page 15 and 16: 3. Raw Materials Trading Under One
Page 17 and 18: Secondary raw materials 2004/2005 i
Page 19 and 20: INTERSEROH Wins Top Job Third Time
Page 21 and 22: Praetorium 61. VV GmbH currently ho
Page 23 and 24: Formation of New Companies Formatio
Page 25 and 26: 2. Financial Position 31.12.2005 31
Page 27 and 28: 3. Key Consolidated Ratios in % Bal
Page 29: • organisational manual as bindin
Page 33 and 34: ANNUAL FINANCIAL STATEMENTS OF THE
Page 35 and 36: CONSOLIDATED NOTES FOR THE FINANCIA
Page 37 and 38: Current cash in banks or bank liabi
Page 39 and 40: According to IAS 39 (Financial Inst
Page 41 and 42: Notes on the Income Statement The c
Page 43 and 44: (8) Result from investment in assoc
Page 45 and 46: Notes on the Balance Sheet (12) Int
Page 47 and 48: The leased and capitalised assets i
Page 49 and 50: (15) Financial assets 2005 EUR mill
Page 51 and 52: The amounts named contain the follo
Page 53 and 54: The net liabilities developed as fo
Page 55 and 56: to the passage of time, the discoun
Page 57 and 58: Of the other liabilities, EUR 0.04
Page 59 and 60: The segments performed as follows i
Page 61 and 62: 2005 EUR million 2004 EUR million W
Page 63 and 64: (36) Management Board and Superviso
Page 65 and 66: Mr. Friedrich Merz, Arnsberg (since
Page 67 and 68: (39) Events after the closing date
Page 69 and 70: The book values of property, plants
Page 71 and 72: In addition to this - and in contra
Page 73 and 74: 4. Praetorium 61. VV GmbH, Berlin,
Page 75 and 76: Annex 1 Statement of Equity Changes
Page 77 and 78: Annex 2 Consolidated Cash Flow Stat
Page 79: Published by: INTERSEROH Aktiengese

Business Report 2005 - Interseroh

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