Group - L. Possehl & Co. mbH

CaPitaL ExPENditUrE aNd fiNaNCiNG
financing Strategy
L. Possehl as the management holding company is primarily
responsible for the financial management of the Possehl Group. The
primary objective of centralized financial management is to ensure the
liquidity and creditworthiness of the Group. The reduction in the cost
of capital, the optimization of the capital structure, and effective risk
management are contributing factors. We decide on a case-by-case
basis whether liquidity is distributed internally within the Group from
a central source or held decentrally in the individual companies. The
same applies to the assumption of financial assistance in the form of
parent guarantees or other backing by L. Possehl. Financial transfers
for the companies in Germany are carried out via a cash management
system.
Our policy on assuming debt is conservative and designed for flexibility.
Along with long-term loans we particularly take advantage of
short-term bank credits. An asset-backed securities program in the
International Trading division is also at our disposal.
We use financial derivatives to hedge risks from operations and
financial transactions. However, we do not enter into any contracts
without an underlying core transaction.
CHANGES IN CASH FLOW AND CAPITAL ExPENDITURE
in € million 2007 2006
Cash flow from operating activities 84.6 97.9
Cash flow from investing activities 52.8 -102.2
Cash flow from financing activities 2.6 -11.8
Changes in cash or cash equivalents
over the period
Cash and cash equivalents
140.0 -16.1
on December 31 179.9 42.0
Cash flow from operating activities exceeded consolidated net
income excluding extraordinary items as in the previous year. The
decline of € 13.3 million from the previous year stemmed primarily
from lower provisions adjusted for changes in the group of consolidated
companies. In addition, higher tax payments reduced cash
flow from operating activities.
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Cash flow from investing activities was € 52.8 million in the
reporting period after € -102.2 million in the previous year. This significant
change resulted primarily from proceeds from the sale of the
NA equity stake. Expenditures for acquisitions were € 29.8 million in
the reporting year and primarily involved the acquisition of the remaining
shares in Hako and the purchase of Pomini.
In 2007, expenditures on property, plant, and equipment plus intangible
assets were € 22.4 million. They were approximately 28 %
less than in the previous year, which included expenditures for building
a new factory in Dongguan. Excluding this extraordinary item, capital
expenditures remained at the same level as in the previous year.
Capital expenditures on property, plant, and equipment plus intangible
assets were slightly below depreciation and amortization.
Capital expenditures net of acquisitions were mainly related to
the Production segment and there specifically to the areas of Cleaning
Machines (€ 9.5 million), Electronics (€ 4.4 million), and Elastomer
Processing (€ 2.7 million). Expenditures were devoted primarily to the
planned modernization of manufacturing sites, environmental protection,
and information technology. Otherwise, capital expenditure was
mainly to replace assets.
The financing of capital expenditures on intangible assets plus
property, plant, and equipment came almost exclusively from cash flow
from operating activities. We obtained favorable borrowing terms for
the medium-term and long-term external financing of the remaining
shares in Hako.
Cash and Cash Equivalents and Net debt
As of December 31, 2007, the Group had cash and cash equivalents
of € 179.9 million, which were completely available for financing
future growth.
The Group’s net debt declined by € 123.0 million. At the end of
the fiscal year, the Possehl Group had positive net liquidity of € 6.1 million
and thus was on balance debt free.
The other liquidity and leverage key figures are on a highly solid
basis.