26 April 2005 Primary Exchange: Frankfurt General Standard Update: FY2004 Results Symbol: CCR ISIN: DE0007627200 Key Points published its FY04 figures on 15 March. Company revenues came in at 26.32m, an 11% increase y-o-y. Net income increased to 0.38m ( 0.06m in FY03). The company again succeeded in increasing its y-o-y margins, raising its gross margin from 20.0 to 21.1% and its net income margin from 0.3 to 1.4%. The most impressive event in CCR s financial year was the signing of a contract with the European Recycling Platform. ERP instructed CCR to prepare infrastructure for an increase in revenues of up to 40m annually by 2007. We recently talked to a representative of ERP in England and were told that CCR received the contract based on its years of excellent service and its flexibility. In a conversation with us, the CEO Achim Winter revealed that he sees more growth in the industry through finding added-value for the customer in the reverse-logistics chain, particularly on warranty items. Recommendation Based on our discounted cash flow model, we maintain our 2005 price target for CCR at 9.33. With an EPS of 0.52 projected for FY06, our price target renders a multiple of 18x, which we consider acceptable for the industry. FIRST BERLIN Germany Recycling Logistics networking, consulting & software solutions Financial History & Projections - HGB Rating: Strong Buy 2005 Price Target: 9.33 Risk Rating: Medium 2003A 2004A 2005E 2006E Revenue m 23.63 26.32 30.78 56.50 Yr/Yr Growth 0% 11% 17% 84% EBIT m 0.10 0.32 0.77 3.85 Net Income m 0.06 0.38 0.85 3.93 EPS 0.01 0.05 0.11 0.52 Company Data (as of 31 December 2004 unless otherwise noted) Market Capitalisation (25.04.05) Enterprise Value (25.04.05) 35.73m 33.62m Shares Outstanding 7.602m Total Assets Liquid Assets Total Shareholders Equity Stock Overview 5.5 5 4.5 4 3.5 12.35m 3.08m 6.72m Risks to our Price Target Based on the signed contract with ERP we are sure CCR will see significant revenue growth in the next several years. However, as the law has not gone into effect, it is difficult to exactly estimate the level of that turnover increase for any particular year. 3 2.5 Insert Price Chart Here 2 1.5 1 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Company Profile is a full-service provider in the field of logistics networking, consulting, and software solutions. It offers reverse-logistics services in four business areas: automotive, electronics, construction and Industry & Commerce. The company also provides added protection to its clients by monitoring regulatory changes and makes recommendations where they may reflect client-specific threats, or indeed, potential business opportunities. Important disclosures are at the back of this report Tel. +49 (0)30-80 93 96 84 1/8 Source: Bloomberg & First Berlin Closing Price (25.04.05): 4.70 52-Week Range: 1.33 / 5.40 Free Float: 38% Average Daily Share Volume (year): Stephen Love First Berlin Group Schumannstr. 17 10117 Berlin 30,986 stephenl@firstberlin.com Fax +49 (0)30-80 93 96 87
published its FY04 figures on 15 March. Company revenues came in at 26.32m, an 11% increase y-o-y. Net income increased to 0.38m ( 0.06m in FY03). CCR s FY04 numbers are in-line with our projections issued on 2 March. However, net income came in 0.04m under our projected 0.42m, reducing the EPS to 0.05, below our projection of 0.06. The company again succeeded in increasing its y-o-y margins, raising its gross margin from 20.0 to 21.1% and its net income margin from 0.3 to 1.4%. to the process, by increasing speed of delivery and reducing costs. Mr. Winter set up a flexible overnight delivery network in his own company, and also co-ordinated deliveries through computer technician s making regular maintenance visits. Due to his success in that project, he was approached by BMW to set up a logistics system for its dealerships in Bavaria. His success with that project led to a request from BMW dealers to provide reverse logistics (i.e. waste management). Recognising the growth possibilities in the industry, Mr. Winter founded CCR to meet the request of BMW for reverse logistics. A Successful 2004 The most impressive event in CCR s financial year was the signing of a contract as a general contractor with the European Recycling Platform (ERP) in Austria, Germany, Italy and Poland. ERP instructed CCR to prepare infrastructure for an increase in revenues of up to 40m annually by 2007. If realised, this projected revenue increase will exceed the company s highest ever total revenue result (FY04) by 152%. The news has taken the stock price to levels it has not seen since 2000 and has created much interest in the company, in both the financial and recycling industries. CCR seems to be an overnight success and many can not understand why this company with 38 employees and revenues in FY03 of 23.63m was awarded such a large pan- European contract. We recently visited CCR s offices in Munich and had a long interview with Achim Winter, CCR founder and CEO. CEO Interview After founding a transport company in Munich called Winter Spedition, Mr. Winter was approached by Siemens in 1993 to set up an overnight delivery system to transport replacement parts to its IT network branches, so as to reduce computer down-time and inventory costs. The project was not as simple as setting up an over-night delivery truck schedule and talking drivers into working nights. The project required the manager to think outside the box of a transport company and find creative ways to add value Success in logistics requires not only getting the right materials, to the right place, at the right time. It involves the ability to see the entire supply-chain in a comprehensive and holistic way. Mr. Winter has a natural aptitude for logistics. In our conversations he displayed a constant awareness of all the links in the supply chain simultaneously and a focus on finding added value in it for his clients. The CEO s Outlook Mr. Winter had known for several years that the WEEE EU directive was coming. The fact that CCR received the contract was not due to luck, but the result of several years of preparation, both in company expertise and adequate software and hardware capacity. In a conversation with us, Mr. Winter revealed that despite the large increase in revenues the WEEE contract will bring the company, he sees more growth in the industry through finding added-value for the customer in the reverse-logistics chain. Although the supply-chain has been thoroughly explored, Mr. Winter indicated that there are still great possibilities to find value in the waste-chain. As an example he cited the company s contract with the Candy Group in Italy. The Italian appliance manufacturer contracted the CCR subsidiary, CCR Italia S.p.A., to set up collection points to gather and recycle parts still under guarantee. CCR evaluates the parts to see if they can be repaired. A surprising number of replaced parts were still in good operating order. This service has begun to save the 2/8
company considerable amounts of money. Mr. Winter noted that Candy undertook the project not because of environmental laws, but because of its ability to add value to the company. In Mr. Winter s view, growth in the reverselogistics industry will be driven by added-value in the area of product guarantees. Operation Areas Automotive CCR realised 87% of its revenues from automotive recycling in FY04. Automotive revenues grew y-o-y by 10%, from 18.28m in FY03 to 20.19m in FY04. The company reported that it was able to continue to expand its market share in automotive recycling in FY04. Based on the number of cars sold in Germany for the year, CCR s contracts with producers assure it a 46% share of the cars sold in Germany in 2004. The company also serviced 4.9% of the German tyre recycling market in 2004. CCR s first automotive contract in Germany was in 1995 with BMW. Since then, its clients in Germany have grown to include Citroën (non-exclusive), Mitsubishi (nonexclusive), Rover, Suzuki, Toyota, Lexus, Porsche, BMW, Mini, and the Volkswagen Group (VW, Audi, Seat, Skoda). In Austria, CCR s automotive market share is currently 4%. In 2004, the BMW Group completed a comprehensive analysis of CCR operative processes, resulting in the company receiving preferred supplier status for BMW suppliers. A contract was signed in 2004 with AMAG, exclusive importer of cars from the Volkswagen Group and Porsche for Switzerland. Beginning in 2005, AMAG s 600 workshops (approx.) will begin using CCR s services. This contract will give CCR a 40% market share of the Swiss automobile recycling market. A large British auto company requested tenders for a recycling contract in 2004. CCR offered a bid but no contracts have been signed to date. The company plans to continue to bid on tenders in Britain. In 2004, CCR also secured a pan European contract with VARTA automotive systems GmbH, for the logistic coordination and transport of used batteries. The contract was first initiated in Germany and France. We expect the contract will begin to show significant revenues in FY05. Construction and Industry & Commerce In H2 FY04, CCR won a bid for logistics for household batteries from GRS, the German industry fund for household batteries. In Q3, CCR signed contracts in several German states for recycling these batteries. The company s Construction and Industry & Commerce activities are growing, but remain well behind automotive recycling in percentage of total revenues. Electronics The directive 2002/96/EC of the European Parliament and Council concerns the disposal of Waste Electrical and Electronic Equipment (WEEE) in the union. It was issued on 27 January 2003 and entails that by 13 August 2005, all member states should ensure, through national legislation, that the guidelines of the directive be implemented. In response to the EU WEEE directive, Braun, Electrolux, HP and Sony founded the European Recycling Platform in December 2002. The ERP s mission is to ensure the cost effective implementation of the directive through innovative waste management strategies (ERP). On 1 December 2004, ERP announced the appointment of CCR as a general contractor. In the press release, CCR Logistics Systems AG was designated to manage all operational activities on behalf of ERP s founders and members in Austria, Germany, Italy and Poland. In guidelines from the ERP, CCR was instructed to prepare infrastructure for an increase of revenues by approximately 40m annually by 2007. As we understand, this revenue number is calculated on annual product placement of the four founding members in the respective countries and those products life expectancy. We expect other producers to join the platform, which could increase the projected revenue. 3/8
We recently talked to a representative of ERP in England and were told that CCR received the contract based on its years of excellent service and its flexibility. She was reluctant to give out any projections on revenues, but did admit that projections were included in contract negotiations with CCR, for the sake of preparations for fulfilling the contract. We sent her a list of questions which she had to submit to representatives of the four partner companies. As yet we have not received an answer. Outlook The company has a unique work structure. Collecting, hauling and recycling activities are done by partners. Therefore, CCR will not have any significant additional costs to gear up for the ERP contract. CCR s projection of up to 40m annual additional revenues by 2007, is based on expected unit tonnage presented to the company by the ERP, with whom CCR signed its contract. These estimates are based on the four ERP partners market share in the countries CCR will cover. CCR s actual revenue levels, however, can not be accurately estimated until the laws go into effect and the first revenue figures are published. Austria is implementing the EU directive on 16 August 2005. As for Italy and Poland, it is not yet clear. We expect they will implement in H1 of 2006. The German law was published on 16 March 2005 and will come into effect on 16 March 2006. Our projections assume that the company will maintain its double-digit revenue growth levels of previous years, from ongoing business. In addition, revenues from the WEEE project will be phased in over the next three years. Due to the late release of the German Law, we include no WEEE revenues from Germany in 2005. Therefore we are reducing our projections for FY05 from 35.70m to 30.78m and net income from 1.24m to 0.85m. We maintain our FY06 projections at present, revenues at 56.50m, net income at 3.93m and EPS of 0.52. 4/8
Technical Analysis Insert Tech. Anal. Chart 50 Day MA 200 Day MA Resistance Support 200 MA Source: Bloomberg Since our previous report on CCR, the share price has appreciated significantly, extending the rally which began late last year, as the WEEE contract was announced. Recently the stock has corrected from highs reached last week and is in the process of consolidating these gains and establishing new support levels. For the near-term, we expect this consolidation to continue with the stock price moving in the 4.50-5.00 range. Our mid- to long-term technical view on CCR remains positive. Should the stock successfully establish support at current levels in the coming weeks, we believe this consolidation would then serve as a sound base for further upside. Given this technically positive picture since December 2004 and the recent pullback in the share price, we would advise investors to buy in the consolidation range. Downside risk is currently 4.00. Please Note: While fundamentals serve as the basis for the overall trend in a stock, technical analysis measures emotional and psychological components. This is valuable in explaining price volatility while company fundamentals remain constant. We provide this simple technical overview to assist with investment timing. 5/8
Risks and Concerns Due to the signed contract CCR has with ERP, to fulfil EU mandated WEEE requirements, and seeing as those requirements have now been passed into law by several states, we do not envisage any risks to CCR receiving significant additional revenue increases over the next years. However, as the law has not gone into effect, it is difficult to exactly estimate the level of that turnover increase for any particular year. A slower implementation of the law will slow CCR s revenue growth. Recommendation is a veteran in the European recycling and waste management industry. From its founding, it had a unique business plan of specialising in logistics and having a hand-picked list of contractors to fulfil all other activities. Its business plan not only keeps its internal costs low but also gives the company a great deal of flexibility to move to new technologies or more competent contractors quickly, without booking asset losses. This allows the company to provide its customers with the most competent and up-to-date services. On 1 December 2004, CCR was awarded a contract to administer the EU WEEE directive in Austria, Germany, Italy and Poland. In large part, it was CCR s European subsidiaries that helped it secure this major contract, which we estimate will increase the company s revenues by up to 40m annually. Although, CCR s stock price rose after the announcement of the contract and has risen since our initial report, in view of the projected revenue increase over the next several years, the stock remains significantly undervalued. According to our projections, CCR s compounded annual revenue growth rate will be 47% over the next two years, with only minor increases in infrastructure and personnel costs. Based on our discounted cash flow model, we maintain our 2005 price target for CCR at 9.33. With an EPS of 0.52 projected for FY06, our price target renders a multiple of 18x, which we consider acceptable for the industry. Our 2005 price target for is 9.33. We recommend a Strong Buy with a medium risk rating. Based on the signed contract with ERP, we are sure CCR will see significant revenue growth in the next several years. However, as the law has not gone into effect, it is difficult to exactly estimate the level of that turnover increase for any particular year. Slow implementation of the law will slow CCR s revenue growth. 6/8
Detailed Financial History & Projections - HGB Profit and Loss 2003A 2004A 2005E 2006E in t TotalA TotalA Q1E Q2E Q3E Q4E TotalE TotalE Total Revenues 23633 26323 6900 6950 7300 9632 30782 56500 Other operating income 279 63 0 0 0 0 0 0 Cost of Materials -18894-20760 -5450-5500 -5750-7642 -24342-44500 Personnel Expenses -2453-2553 -700-710 -710-710 -2830-3500 Amortization on goodwill -727-714 -180-180 -190-200 -750-750 Other operating expenses -1738-2038 -530-540 -510-510 -2090-3900 Operating income 100 321 40 20 140 570 770 3850 Financial result -70-42 -13-14 -16-17 -60-60 Income from ordinary operations 30 279 27 6 124 553 710 3790 Minority interest 34 101 30 30 40 40 140 140 Net income 64 381 57 36 164 593 850 3930 Net income per Share /EPS 0.01 0.05 0.01 0.00 0.02 0.08 0.11 0.52 Profitability Analysis 2003A 2004A 2005E TotalA TotalA Q1E Q2E Q3E Q4E TotalE TotalE Operating-Margin 0% 1% 1% 0% 2% 6% 3% 7% Net Income Margin 0% 1% 1% 1% 2% 6% 3% 7% Expenses as % of revenues Purchased materials and services 80% 79% 79% 79% 79% 79% 79% 79% Personnel 10% 10% 10% 10% 10% 7% 9% 6% Q-Q Growth Total revenues - - -3% 1% 5% 32% - - Operating income - - -46% -50% 600% 307% - - Net income - - -21% -37% 356% 262% - - Y-Y Growth Total revenues - 11% 10% 11% 10% 35% 17% 84% Operating income - 221% -63% -72% 103% 665% 140% 400% Net income - 499% -41% -63% 41% 726% 123% 362% 2006E 7/8
First Berlin Recommendation and Price Target History Report No: Date of Publication Previous Day Closing Price Recommendation Target Price Interim High % Change to High 1 2 March, 2005 3.12 Strong Buy 9.33 4.59 47.1% 2 22 March, 2005 3.99 Strong Buy 9.33 5.40 35.3% 3 Today 4.70 Strong Buy 9.33 - - Source: Bloomberg & First Berlin First Berlin Policy In an effort to assure the independence of First Berlin research neither analysts nor the company itself trade or own securities in subject companies. In addition, Analysts compensation is not directly linked to specific financial transactions, trading revenue or asset management fees. Analysts are compensated on a broad range of benchmarks. Furthermore, First Berlin receives no compensation from subject companies in relation to the costs of producing this report. Analyst Certification I, Stephen Love, certify that the views expressed in this report accurately reflect my personal and professional views about the subject company; and I certify that my compensation is not directly linked to any specific financial transaction including trading revenue or asset management fees; neither is it directly or indirectly related to the specific recommendation or views contained in this research. In addition, I possess no shares in the subject company. Rating System First Berlin s investment rating system is five tiered and is a function of our expectation of return (forecast price appreciation and dividend yield) over the next 12 months. Our investment ratings are as follows: STRONG BUY: Expected return greater than 20% BUY: Expected return greater than 10% HOLD: Fairly valued REDUCE: Expected return between -10% and 0% SELL: Expected return to depreciate by more than 15% In addition, we have a SPECULATIVE BUY recommendation for stocks which we believe have the potential to give a return of 50% or more but which also we expect to be exceptionally volatile (movement up or down of 50% or more). Risk Rating Our risk ratings are Low, Medium, High and Speculative and are a reflection of expected price volatility, the strength of the balance sheet and the predictability of earnings. Additional Disclosures This report is not constructed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer would be illegal. We are not soliciting any action based upon this material. This material is for the general information of clients of First Berlin. It does not take into account the particular investment objectives, financial situation or needs of individual clients. Before acting on any advice or recommendation in this material, a client should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only; such opinions are subject to change without notice. In addition, investors should assume that First Berlin has sought or is seeking a professional relationship with subject companies. 2005 First Berlin GmbH. All rights reserved. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without First Berlin s prior written consent. The research is not for distribution in the USA or Canada. When quoting please cite First Berlin as the source. Additional information is available upon request. 8/8